IRS Receives Court Order Approving Subpoenas for Records Regarding US Taxpayers who Failed to Report and Pay Taxes on Cryptocurrency Transactions – Department of Justice | Jewelry Dukan

Damian Williams, United States Attorney for the Southern District of New York, David A. Hubbert, Assistant Assistant Attorney General for the Tax Division of the Department of Justice, and Charles P. Rettig, Commissioner of the Internal Revenue Service (“IRS”), announced that the U.S – District Judge Paul G. Gardephe issued an order on September 22, 2022 authorizing the IRS to issue a John Doe subpoena requesting that MY Safra Bank provide information about U.S. taxpayers that it may fail to provide have to report to the IRS and pay taxes on cryptocurrency transactions. Specifically, the IRS subpoena is seeking information about clients of SFOX, a cryptocurrency prime broker, who have used banking services offered by MY Safra Bank to SFOX clients involved in cryptocurrency transactions. As further described in the IRS’s petition in support of the subpoena, while taxpayers transacting in cryptocurrencies are required to report all related gains and losses on their tax returns, the IRS’s experience has significant shortcomings in tax compliance in related to cryptocurrencies and other digital assets.

US Attorney Damian Williams said: “Taxpayers are required to accurately disclose their tax liabilities on their tax returns, and liabilities arising from cryptocurrency transactions are not exempt. The Government is committed to using all tools at its disposal, including subpoenas from John Doe, to identify taxpayers who have understated their tax liabilities by underreporting cryptocurrency transactions and ensure everyone pays their fair share.”

Assistant Assistant Attorney General David A. Hubbert said, “Taxpayers who transact cryptocurrency should understand that income and gains from cryptocurrency transactions are taxable. The information requested in the subpoena approved today will help ensure cryptocurrency owners comply with tax laws.

IRS Commissioner Charles P. Rettig said, “The government’s ability to obtain information from third parties about those who fail to report their digital asset gains remains a critical tool in tracking down tax fraudsters. The court’s approval of the John Doe subpoena reinforces our ongoing, significant efforts to ensure everyone pays their fair share. Taxpayers who derive revenue from digital asset transactions must comply with their filing and reporting obligations.”

According to the allegations in the documents filed in support of John Doe’s request for permission to subpoena and other information in the public records:

SFOX is a premier cryptocurrency trader and trading platform, connecting digital currency exchanges, over-the-counter virtual currency brokers and liquidity providers worldwide. SFOX has over 175,000 registered users who have collectively made more than $12 billion in transactions since 2015. Based on its recent experience with cryptocurrencies, the IRS has good reason to believe that many virtual currency transactions are not properly reported on tax returns. Among other things, there is no third-party reporting to the IRS in connection with such transactions, and subpoenas served on other cryptocurrency traders have revealed significant under-reporting of such transactions. In addition, IRS investigations have identified at least ten U.S. taxpayers who have used SFOX’s services for cryptocurrency transactions but have failed to report those transactions to the IRS as required by law.

SFOX has partnered with MY Safra to offer SFOX users access to bank accounts with cash deposits. SFOX users could use their funds on MY Safra to buy and sell SFOX virtual currency positions. Based on MY Safra’s agreement with SFOX, the IRS expects that in response to John Doe’s subpoena, MY Safra will be able to provide information about the identities and cryptocurrency transactions of SFOX users who also use MY Safra’s services have – which will then be the IRS can use in conjunction with other information to verify that those users have complied with internal tax laws.

In that lawsuit, the district court granted the IRS permission to serve a John Doe subpoena on MY Safra. There is no allegation in this lawsuit that MY Safra committed any wrongdoing. Rather, the IRS uses subpoenas from John Doe to obtain information about possible violations of internal tax laws by individuals whose identities are unknown. John Doe’s subpoena directs MY Safra to create records that enable the IRS to identify US taxpayers who were customers of SFOX and engaged in cryptocurrency transactions that may not have been properly reported on tax returns. In parallel, on August 15, the United States District Court for the Central District of California authorized the IRS to self-serve a John Doe subpoena on SFOX.

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This case is being handled by the Office’s Tax and Insolvency Division. Assistant US Attorney Jean-David Barnea is in charge of the case.

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