The US Internal Revenue Service (IRS), the tax authority of the US, has received a Court Order to be able to summons records pertaining to US taxpayers who may have failed to report and pay taxes on crypto transactions.
According to the Department of Justice (DOJ), US District Judge Paul G. Gardephe entered an order on September 22, 2022, authorizing the IRS to issue a John Doe summons requiring M.Y. Safra Bank to produce information about US taxpayers who may have failed to report to the IRS, and pay taxes on, cryptocurrency transactions.
Specifically, the IRS summons seeks information about customers of SFOX, a crypto prime broker, who used banking services that M.Y. Safra Bank offered to SFOX customers engaged in cryptocurrency transactions, according to the DOJ. SFOX is said to have over 175,000 registered users who have completed over $12 billion in transactions since 2015.
U.S. Attorney Damian Williams issued the following statement:
“Taxpayers are required to truthfully report their tax liabilities on their returns, and liabilities that arise from cryptocurrency transactions are not exempt. The government is committed to using all of the tools at its disposal, including John Doe summonses, to identify taxpayers who have understated their tax liabilities by not reporting cryptocurrency transactions, and to make sure that everyone pays their fair share.”
Charles P. Rettig, IRS Commissioner added:
“The government’s ability to obtain third-party information on those failing to report their gains from digital assets remains a critical tool in catching tax cheats. The court’s granting of the John Doe summons reinforces our ongoing, significant efforts to ensure that everyone pays their fair share. Taxpayers earning income from digital asset transactions need to come into compliance with their filing and reporting responsibilities.”
The IRS believes that many digital asset transactions are not being reported correctly. The IRS states that investigations have identified at least ten US taxpayers who used SFOX’s services for cryptocurrency transactions but failed to report those transactions to the IRS.
The IRS utilizes John Doe summonses to obtain information about possible violations of the internal revenue laws by individuals whose identities are unknown.
On August 15, the IRS was authorized the US. District Court for the Central District of California to serve a John Doe summons on SFOX itself.
A recent report distributed by John Reed Stark, a former SEC enforcement official, outlines further the activities being pursued by the DOJ and the IRS in regards to taxpayers believed not to have misreported, or simply not reported, crypto gains. Stark states that “Operation Hidden Treasure” is an ongoing project by the IRS that aims to uncover crypto tax evasion. He states that platforms like Circle and Kraken have been the target of John Doe Summonses.