Home Technology Warning To All US Taxpayers Who Use Cryptocurrency: “Crypto” Doesn’t Mean Your Currency Is Secret – Or Protected – From The IRS – FinTech

Warning To All US Taxpayers Who Use Cryptocurrency: “Crypto” Doesn’t Mean Your Currency Is Secret – Or Protected – From The IRS – FinTech

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Warning To All US Taxpayers Who Use Cryptocurrency: “Crypto” Doesn’t Mean Your Currency Is Secret – Or Protected – From The IRS – FinTech

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On August 15, 2022, the Federal Court for the Central District of California authorized the IRS to serve a John Doe subpoena on SFOX, a cryptocurrency master dealer headquartered in California. A John Doe subpoena is a device (for example, a subpoena) to collect information from a third party, where the IRS does not know the identity of the person they are seeking the information about. This is not the first time the IRS has issued a John Doe subpoena on a crypto-entity, but it is the first time the IRS has investigated and specifically sought out taxpayers with high-value cryptocurrency transactions. . This is also the first time the IRS has targeted a cryptocurrency trading platform, underscoring the IRS’ interest in underreported cryptocurrency transactions.

While there are no allegations that SFOX is engaged in any wrongdoing, John Doe’s subpoena requires SFOX to produce records identifying US taxpayers who used his services and any other documents relating to crypto transactions – currency of taxpayers. The subpoena allows the IRS to obtain information about US taxpayers who made at least $20,000 in a year, in cryptocurrency transactions from 2016 to 2020, using SFOX.

This is not the first time a federal court has used a John Doe subpoena to extract information from non-parties about US taxpayers involved in cryptocurrency transactions. In 2016, a federal court allowed the IRS to serve a subpoena on John Doe over a US-based cryptocurrency exchange. In 2021, two federal courts in California authorized the IRS to serve two John Doe summonses on two cryptocurrency exchanges and a digital wallet institution.

When the IRS is investigating potential violations of internal tax laws by unknown persons, groups, or classes of persons, the IRS will request a John Doe summons, which is permitted under Internal Revenue Code § 7609( f). With a normal summons, the IRS seeks information about a specific taxpayer whose identity is known; in contrast, a John Doe subpoena allows the IRS to obtain information about any taxpayer within a “verifiable group or class of persons.” IRC § 7609(f)(1). The IRS must also have a “reasonable basis” to believe that this group or class of people may have violated the internal revenue law. IRC § 7609(f)(2).

John Doe summons are not limited to cryptocurrency transactions. In 2008 and 2013, the IRS obtained subpoenas from John Doe against Swiss-based banks for information on US taxpayers who used Swiss bank accounts to evade US federal income tax.

The IRS has made it clear that it intends to focus its efforts on obtaining information about those using cryptocurrency to prosecute violations of domestic revenue laws. If you have made cryptocurrency transactions and have not reported those transactions to the IRS, or have any questions or concerns about those transactions, please contact our team at Foley & Lardner before the IRS does not obtain your information and contact you.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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