On August 15, 2022, a federal judge in the Central District of California issued an order allowing the IRS to serve a John Doe summons on SFOX, a cryptocurrency prime dealer with its headquarters in Los Angeles, California.
The summons was issued in order to obtain information about American taxpayers who carried out at least $20,000 worth of cryptocurrency transactions with or through SFOX between 2016 and 2021.
Deputy Assistant Attorney General David A. Hubbert of the Justice Department’s Tax Division stated, “Taxpayers who deal with cryptocurrencies should recognise that income and profits from cryptocurrency transactions are taxable.”
“The data requested by the today granted summons will assist in ensuring that bitcoin owners are complying with tax regulations.”
According to IRS Commissioner Chuck Rettig, “The John Doe summons is a very useful enforcement tool that the U.S. government will utilise again and again to uncover tax offenders.
This is yet another illustration of that.” “I encourage all taxpayers to fulfil their filing and reporting obligations and refrain from putting their interests at risk by participating in schemes that might potentially backfire on them.”
Taxpayers could be utilising cryptocurrencies to conceal taxable income from the IRS since they can be challenging to track and have a built-in pseudo-anonymous element.
According to the court’s decision, United States District Court Judge Otis D. Wright determined that there is cause to suspect that those who engaged in bitcoin transactions worth at least $20,000 may not have complied with federal tax rules.
The IRS is authorised by the court order to issue SFOX with a “John Doe” summons.
No misconduct in relation to SFOX’s digital currency business is alleged to have occurred in this lawsuit. Instead, the IRS employs John Doe summonses to learn more about alleged internal tax law infractions by people whose names are unknown.
This John Doe summons orders SFOX to submit information pertaining to the cryptocurrency transactions of U.S. taxpayers who have utilised its services, as well as data identifying such taxpayers.
Virtual currencies that can be converted into traditional currency are considered property for tax purposes, and a taxpayer may experience a gain or loss on the sale or exchange of a virtual currency depending on the cost of the virtual currency (i.e., the taxpayer’s tax basis). The IRS has provided guidance regarding the tax implications of using virtual currencies in IRS Notice 2014-21.
The IRS warns taxpayers that there is a question concerning virtual currency transactions at the top of the 2022 Form 1040 (income tax return) and the 2022 Form 1040-SR (income tax return for seniors).
Visit this page for further details: Virtual Currencies | Internal Revenue Service (irs.gov).
The Tax Division’s website has further details on the division and its enforcement initiatives.