U.S. tax authorities have obtained a court order empowering them to seek information about crypto traders who may be evading taxes.
A U.S. district court judge authorized the Internal Revenue Service (IRS) to issue a so-called “John Doe” summons to a New York-based bank, M.Y. Safra Bank, ordering it to turn over information on U.S. clients that may have failed to report their crypto transactions to the IRS.
“The IRS summons seeks information about customers of SFOX, a cryptocurrency prime broker, who used banking services that M.Y. Safra Bank offered to SFOX customers engaged in cryptocurrency transactions,” U.S. authorities said.
According to court filings, the IRS said that based on M.Y. Safra’s relationship with SFOX — it provides SFOX users with access to bank accounts that can be used to trade positions in crypto on SFOX — the bank will be able to provide information about the identities and crypto trading activity of SFOX users who also used M.Y. Safra’s services.
In a petition in support of the summons, the IRS said it has already found “significant tax compliance deficiencies” in the crypto space.
Among other things, it pointed to a lack of third-party reporting to tax authorities for crypto transactions and its experience with other crypto firms that have “revealed significant underreporting of such transactions.” The IRS added its investigations have identified at least 10 taxpayers who used SFOX’s services and failed to report their activity.
“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,” IRS commissioner Charles Rettig said in a release.
“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,” he added.