How it works
Analytics vendors such as Chainalysis and TRM Labs cluster wallet addresses that behave as one owner, follow funds across exchanges and chains, and attach real identities where any address touched a KYC exchange, a summons response, or a broker form. The IRS has spent tens of millions on these contracts and Criminal Investigation has used the tools in prosecutions that courts have accepted.
Why it matters
Once one address is tied to a name, clustering attributes the rest. The belief that DeFi or self-custody activity is invisible is the most expensive assumption in crypto tax.
Related: Operation Hidden Treasure, KYC. Read more: how the IRS finds unreported crypto.
