What Is a Title 31 Exam?

If you operate a cryptocurrency exchange, Bitcoin ATM network, payment processor, or any other business registered with FinCEN as a Money Services Business, there is a federal examination program specifically designed to audit your compliance, and the IRS runs it. It is called a Title 31 exam. Unlike a tax audit, most business owners don’t see it coming until a letter arrives.

This post explains what a Title 31 exam is, what triggers one, what IRS examiners actually look at, what the consequences of a deficiency finding are, and what you can do right now to reduce your exposure.

Factors that trigger an IRS Title 31 BSA examination for money services businesses and crypto operators

What Is a Title 31 Exam?

A Title 31 exam is an examination of a business’s compliance with the Bank Secrecy Act (BSA), which is codified in Title 31 of the United States Code. The IRS Small Business/Self-Employed Division conducts these examinations for MSBs that are not examined by a federal banking regulator, which includes the vast majority of crypto businesses.

The purpose of a Title 31 exam is not to assess your tax liability. It is to determine whether your AML compliance program meets the requirements of the BSA and FinCEN’s implementing regulations. Examiners are looking at your policies, controls, records, and actual conduct, not your income.

Title 31 exams have historically targeted casinos, check cashers, and money transmitters. Over the last several years, the IRS has significantly expanded its examination of cryptocurrency businesses, including exchanges, Bitcoin ATM operators, and fintech platforms that handle digital assets. If your business touches fiat-to-crypto conversion or transmits value on behalf of customers, you are squarely within scope.

What Triggers a Title 31 Exam?

The IRS does not publicize its selection criteria in detail, but several factors are known to increase examination risk:

FinCEN registration. Registering as an MSB places your business in the IRS examination pool. Examiners work from the FinCEN MSB registration database, so registration, while legally required, is also what makes your business visible.
SARs and CTRs. Suspicious Activity Reports and Currency Transaction Reports filed by your business, or filed by other institutions about your customers, can flag your operations for examiner attention.
Referrals. FinCEN can refer businesses to the IRS for examination based on its own analysis of filing patterns, regulatory concerns, or law enforcement tips.
Industry sweeps. The IRS periodically conducts sector-specific examination campaigns. Bitcoin ATM operators, in particular, have been subject to coordinated examination activity in recent years.
Random selection. Some examinations are initiated without a specific trigger as part of the IRS’s baseline examination program for MSBs.
Prior examination findings. A business that received deficiency findings in a previous Title 31 exam is at elevated risk of follow-up examination.

What does not trigger a Title 31 exam: having a strong AML compliance program. But it is the single most effective thing you can do to manage the outcome once one begins.

What Happens During a Title 31 Exam?

Initial Contact

The examination typically begins with a letter from the IRS notifying your business that it has been selected for a BSA examination. The letter will identify the examining agent, request an initial interview, and include an Information Document Request (IDR) listing the documents you must produce.

Do not ignore this letter. Do not respond without consulting legal counsel. The initial document request sets the scope of the examination, and your response, or failure to respond, is noted.

The Information Document Request

The IDR is the examiner’s primary investigative tool. You will typically be asked to produce:

Your written AML compliance program and all versions in effect during the examination period
FinCEN Form 107 registration and renewal records
BSA officer designation and documentation of their role
Employee AML training curriculum, training logs, and completion records
All independent AML audit reports and management responses to findings
KYC/CIP procedures and sample customer files
Transaction monitoring system documentation and alert handling records
SAR filings and supporting documentation for both filed and declined SARs
CTR filings for the examination period
OFAC screening procedures and records
Transaction records, including fiat-to-crypto and crypto-to-crypto volumes by customer and jurisdiction

For crypto businesses specifically, examiners may also request blockchain transaction records, wallet screening logs, Travel Rule compliance documentation, and records of any blockchain analytics tools used.

The Interview

After reviewing your documents, the examiner will conduct interviews with your BSA officer and potentially other personnel. They are assessing whether the people responsible for compliance actually understand your program and whether it is being implemented in practice, not just documented on paper.

Examination of Records

Examiners will review your records against the requirements of the BSA and FinCEN regulations. They are looking for gaps between what your written program says should happen and what your transaction records and operational documentation show actually happened.

IRS Title 31 examiner reviewing BSA AML compliance records for a cryptocurrency money services business

What Do Examiners Actually Look For?

A Title 31 examination evaluates whether your AML program satisfies all five required pillars of BSA compliance. In practice, the areas that generate the most deficiency findings in crypto businesses are:

Missing or inadequate independent testing: The most commonly cited deficiency. Many crypto businesses either never conduct an independent AML audit or conduct one without producing a written report, which means there is no documented evidence it occurred.
CIP and KYC gaps: Insufficient identity verification at onboarding, no beneficial ownership collection for business accounts, or EDD that exists in policy but isn’t triggered in practice for high-risk customers.
Transaction monitoring failures: Alert thresholds set too high, alerts generated but not investigated, or no documentation of investigation outcomes and escalation decisions.
SAR quality and timeliness: SARs filed late; narratives that are incomplete or vague; or, more seriously, patterns of suspicious activity that should have prompted a SAR filing but didn’t.
Outdated or generic AML policies: Policies that haven’t been updated to reflect regulatory changes, or that are clearly off-the-shelf templates with no customization to the actual business.
Training gaps: No training records, training that hasn’t been updated in years, or training that covers generic AML concepts without addressing the specific red flags relevant to crypto operations.

What Are the Consequences of a Title 31 Deficiency Finding?

The IRS examiner’s findings are documented in a report. If deficiencies are identified, the examiner will issue a proposed finding and give your business an opportunity to respond. Depending on the severity of the findings, the consequences can include:

Civil money penalties: Under 31 U.S.C. § 5321, the IRS may assess civil penalties for BSA violations. For negligent violations, penalties can reach $500 per violation. For willful violations, penalties can reach the greater of $100,000 or the amount of the transaction involved, per violation, per day.
Cease-and-desist orders: For serious or repeated violations, FinCEN can issue a cease-and-desist order requiring your business to remediate deficiencies under regulatory supervision.
Criminal referrals: Willful violations of the BSA can be referred for criminal prosecution under 31 U.S.C. §5322, with penalties including fines and imprisonment.
Enhanced future scrutiny: A deficiency finding puts your business on record with both the IRS and FinCEN and significantly increases the likelihood of follow-up examination.
Banking and partnership consequences: Title 31 examination findings are discoverable by banking partners, payment processors, and institutional counterparties conducting due diligence on your business. A deficiency finding can cost you your banking relationships.

It is important to note that deficiency findings can be appealed through IRS administrative channels after the examination concludes. Legal representation during this process is not optional; it is essential.

Title 31 Exam Representation

If you have received notice of a Title 31 examination, you have the right to legal representation throughout the process. At Hodder Law, we provide Title 31 exam representation for crypto businesses and MSBs, including:

Responding to the initial IDR and managing document production
Preparing your BSA officer and key personnel for examiner interviews
Reviewing your AML program for deficiencies before the examiner does
Attending the examination in person or via video
Drafting responses to proposed deficiency findings
Representing your business through appeals if penalties are assessed

Engaging legal counsel at the outset of a Title 31 examination, not after a deficiency finding, is the single most effective way to manage the outcome.

How to Reduce Your Title 31 Exam Risk Now

You don’t need to wait for an IRS letter to act. The businesses that fare best in Title 31 examinations are those that treat BSA compliance as an operational discipline rather than a documentation exercise.

Conduct an independent AML audit annually: This is the pillar most often missing when the IRS comes knocking. A documented independent AML audit conducted by qualified outside counsel provides a written record of your compliance posture and a remediation roadmap for any gaps before an examiner identifies them.
Keep your AML program current: Regulations, enforcement priorities, and red flag guidance evolve. Your written policies should reflect the current regulatory environment and your current business model, not the state of both when you launched.
Document everything: The difference between a finding and a clean examination often comes down to documentation. Training logs, alert investigation records, SAR decision memos, and onboarding files that clearly show your process was followed are your best defense.
Review your FinCEN registration: Make sure your Form 107 is current, your renewal is on schedule, and any material changes to your business, ownership, services, or agent network have been reported.
Know your risk: Higher transaction volumes, higher-risk customer segments, and cross-border operations all increase your examination risk profile. Your AML program’s depth and frequency of independent testing should match that risk level.

Attorney providing Title 31 exam representation for a crypto business — Hodder Law

Your Next Move

A Title 31 exam is not a theoretical risk for crypto businesses; it is an active enforcement program that the IRS has specifically directed at the digital asset industry. The businesses that navigate it well are those with documented, functioning AML programs and legal counsel engaged before the first IDR lands.

If you have received a Title 31 examination notice, or if you want to assess your current BSA compliance posture before one arrives, contact Hodder Law for a consultation.

This post is intended for informational purposes only and does not constitute legal advice. For advice specific to your business, consult a qualified BSA compliance attorney.

References & Legal Authority

Federal Statutes

Bank Secrecy Act — 31 U.S.C. §5311 et seq.
BSA Civil Money Penalties — 31 U.S.C. §5321
BSA Criminal Penalties — 31 U.S.C. §5322
MSB Registration Requirement — 31 U.S.C. §5330

Code of Federal Regulations

MSB AML Program Requirements — 31 CFR §1022.210
MSB Registration — 31 CFR §1022.380
MSB Definition — 31 CFR §1010.100(ff)
Travel Rule — 31 CFR §1010.410(f)

FinCEN Guidance

FinCEN Form 107 — Registration of Money Services Business
FinCEN, Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies (FIN-2013-G001, March 2013)

IRS

IRS Publication 3416 — Bank Secrecy Act Examination Procedures for Money Services Businesses
IRS Small Business/Self-Employed Division — Title 31 Examination Program