Why Crypto Tax Evaders Should Worry About The IRS

Key Points:

• John Doe summons allows the tax authorities to require M.Y. Safra Bank to submit records of taxpayers who may not have reported crypto tax on transactions.
• IRS, the tax agency stated that third-party like banks and crypto exchanges are bound to comply in pursuance of tax investigations and audits.

The cryptocurrency market has grown in popularity and become mainstream throughout the years. Consequently, as the crypto community grows larger, trading volumes increase to new highs and with the growing acceptance of cryptocurrency as a  mode of payment,  the United States is also making more effort to ensure that the Internal Revenue Service (IRS) can properly collect crypto tax on digital assets.

The U.S. Attorney’s office of the Southern District of New York has allowed the IRS to issue John Doe summons to investigate the tax records of U.S. taxpayers who are users of the crypto broker platform, SFOX.

John Doe Summons On Crypto Transactions

The court in New York granted the IRS to issue a “John Doe summons,” a term used as an investigative tool that is used to discover the identity of unidentified individuals who the IRS is inclined to believe are in violation of tax law. 

The court granted the IRS petition that requires New York-based M.Y. Safra Bank to submit records of taxpayers who may not have filed tax returns or paid taxes for cryptocurrency transactions. The ruling will allow the tax authorities to continue their search for tax evaders. The IRS is specifically looking at users of the cryptocurrency broker platform, SFOX, which collaborated with M.Y. Safra bank to allow its customers to access cash-deposit accounts. The users can make use of their cash to purchase cryptocurrency through these accounts.

IRS On Crypto Tax Investigation And Audits

This is not the first occasion that a U.S. court has granted the IRS the right to gather the information of people who are involved in transactions using cryptocurrency. In August of this year, a California judge’s decision approved the IRS to issue an order against SFOX. In April of this year, courts again approved the John Doe summons issued to the crypto exchange Kraken and Circle, the issuer of the stablecoin USDC.

The tax authorities can pursue investigations and audits on individuals who have traded digital currencies but haven’t reported their income thus disregarding their tax obligations. IRS Commissioner Charles P. Rettig stated that the government has the ability to gather third-party information and it remains a critical tool in catching tax cheats for those failing to report their gains from digital assets. He further reminded the taxpayer’s obligation to abide and comply with filing and reporting responsibilities on declaring income from digital asset transactions.