Damian Williams, United States Attorney for the Southern District of New York, David A. Hubbert, Assistant Deputy Attorney General for the Justice Department’s Tax Division, and Charles P. Rettig, Commissioner of the Internal Revenue Service ( “IRS”), announced that U.S. District Judge Paul G. Gardephe issued an order on September 22, 2022, authorizing the IRS to issue a so-called John Doe subpoena requiring MY Safra Bank to produce taxpayer information Americans who allegedly failed to report to the IRS, and pay taxes on cryptocurrency transactions. Specifically, the IRS subpoena seeks information about clients of SFOX, a cryptocurrency prime broker, who used banking services that MY Safra Bank offered to SFOX clients engaged in crypto transactions. -change. As further described in the IRS’ motion in support of the summons, although taxpayers who transact in cryptocurrencies are required to report all associated profits and losses on their tax returns, the IRS experience has demonstrated significant tax compliance shortcomings regarding cryptocurrencies and other digital assets.
US Attorney Damian Williams said, “Taxpayers are required to fairly report their tax obligations on their returns, and obligations arising from cryptocurrency transactions are not exempt. The government has pledged to use all tools at its disposal, including John Doe summonses, to identify taxpayers who have understated their tax obligations by not reporting cryptocurrency transactions, and to ensure Everyone pays their fair share.
Assistant Deputy Attorney General David A. Hubbert said, “Taxpayers who transact with cryptocurrency should understand that income and gains from cryptocurrency transactions are taxable. The information sought by the summons approved today will help ensure that cryptocurrency owners comply with tax laws.
IRS Commissioner Charles P. Rettig said, “The government’s ability to obtain third-party information on those who fail to report their earnings from digital assets remains a critical tool in catching tax evaders. The granting of the John Doe subpoena by the court reinforces our ongoing and meaningful efforts to ensure that everyone pays their fair share. Taxpayers who derive income from digital asset transactions must comply with their filing and reporting responsibilities.
According to the allegations contained in documents filed in support of the motion to authorize John Doe’s subpoena, and other information in the public record:
SFOX is a leading cryptocurrency trader and trading platform that connects digital currency exchanges, over-the-counter virtual currency brokers, and liquidity providers globally. SFOX has over 175,000 registered users who have collectively made over $12 billion in transactions since 2015. Based on its recent experiences with cryptocurrencies, the IRS has reason to believe that many transactions in virtual currency are not properly reported on tax returns. Among other reasons, there is no third-party reporting to the IRS in connection with these transactions, and summonses served on other cryptocurrency dealers revealed significant under-reporting of these transactions. Additionally, IRS investigations have identified at least ten U.S. taxpayers who used SFOX’s services for cryptocurrency transactions but failed to report those transactions to the IRS as required by law.
SFOX has partnered with MY Safra to offer SFOX users access to cash deposit bank accounts. SFOX users were able to 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 summons, MY Safra will be able to provide information about crypto identities and transactions. currency of SFOX users who have also used MY Safra services, which the IRS will then be able to use in conjunction with other information to determine whether such users have complied with internal tax laws.
In this action, the District Court granted the IRS permission to serve what is called a John Doe Summons on MY Safra. There is no allegation in this action that MY Safra has committed any wrongdoing. Instead, the IRS uses John Doe summonses to obtain information about possible violations of domestic tax laws by persons whose identities are unknown. John Doe’s subpoena orders MY Safra to produce records that will allow the IRS to identify US taxpayers who were SFOX customers who engaged in cryptocurrency transactions that may not have not been correctly reported on tax returns. In parallel, the IRS was authorized on August 15 by the United States District Court for the Central District of California to serve a subpoena on John Doe on SFOX itself.
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This case is handled by the Office’s Tax and Bankruptcy Unit. Assistant US Attorney Jean-David Barnea is in charge of the case.
