DC Court Limits IRS Crypto Seizures: Must Pinpoint Specific Addresses, Not Whole Wallets

COURT SMACKS IRS ON CRYPTO ACCOUNT SEIZURES

The U.S. District Court for the District of Columbia just handed the IRS a partial defeat in its attempt to seize twenty-four cryptocurrency accounts. The court ruled that the government could not treat every wallet as a single “account” for forfeiture purposes without proving which specific addresses actually held the targeted funds, a decision that immediately limits the IRS’s dragnet tactics and hands crypto users a rare procedural shield.

The case began when the IRS, working with the Department of Justice, filed a civil forfeiture complaint against two dozen crypto wallets linked to an alleged international tax-evasion scheme. Rather than tracing exact transaction paths, investigators simply listed the public addresses they believed held the proceeds and asked the court to let them seize everything inside. The wallet owners challenged the move, arguing that the government’s affidavits never explained how funds moved from the alleged tax fraud into each individual address. In a sharply worded opinion, Judge Dabney L. Friedrich agreed, holding that civil-asset forfeiture requires “particularity” — the government must show probable cause that each specific account contains the tainted property, not just that the wallet sits on the same blockchain.

The ruling means the IRS can still pursue the addresses it can clearly trace, but it must drop or amend claims against any wallet whose connection rests on speculation or bulk association. For exchanges and DeFi protocols that freeze customer funds at the government’s request, the decision raises the compliance bar: they now face potential liability if they lock wallets without the same level of individualized evidence the court demanded here.

In practical terms, the opinion shifts power from the government toward users by forcing investigators to do the hard blockchain forensics instead of relying on scatter-shot seizures. It also signals to regulators that courts will not rubber-stamp crypto forfeiture complaints the way they sometimes do with traditional bank accounts, where ownership records are centralized and clear.

For traders and yield farmers, the ruling injects momentary breathing room: the risk of having an entire wallet frozen on a loose link just dropped, but only until the government sharpens its evidence or Congress writes new rules.