Crypto is on a wild ride with some speculators recently losing life savings even as others stay the course and continue to buy in. One of the parties along for the ride is the Internal Revenue Service (IRS), which scored a big win in the U.S. District Court in September. The Court cleared the way for the agency to obtain client records maintained by a crypto platform. The move allows the IRS to identify taxpayers with unreported income on crypto transactions.
The Department of Justice (DOJ) recently announced that the U.S. District Court authorized a summons upon M.Y. Safra Bank to provide information to the IRS on taxpayers. The IRS is looking to identify taxpayers who may be committing tax fraud by using cryptocurrency, a platform that has only in recent years gained strong interest from the IRS. In this summons, the IRS is particularly looking at transactions brokered through SFOX, a crypto dealer. SFOX uses the services of M.Y. Safra Bank, which has its headquarters in New York.
The aim of the IRS is deceptively simple. Just as the IRS presses to pursue taxpayers for failure to file income tax returns and pay their tax liability, the agency is pursuing those who have shifted wealth into cyber platforms. In 2020, the IRS added a crypto earnings question to tax returns and in 2021, legislation passed with the infrastructure bill requires annual tax reporting from crypto brokers beginning in January 2023.
While crypto remains an enigma to many, the digital currency continues to make inroads, even as it proves itself—at least at present—unstable. As noted by a Deputy Assistant Attorney working with the SFOX matter, “Taxpayers are required to truthfully report their tax liabilities on their returns, and liabilities that arise from cryptocurrency transactions are not exempt. The government is committed to using all of the tools at its disposal, including John Doe summonses, to identify taxpayers who have understated their tax liabilities by not reporting cryptocurrency transactions, and to make sure that everyone pays their fair share.”
As scrutiny of digital currency by the IRS tightens, take stock of your own cyber coin. If you know you are not compliant, speak with a tax attorney about options for amending your returns—before the IRS reaches out to speak with you.
An experienced tax attorney helps if you are facing a tax controversy or criminal tax charge
Serving local and international clients from offices in Chicago and Cleveland, the tax group at Robert J. Fedor, Esq., LLC helps you respond strategically to questions about offshore tax investment, cyber disclosure, or allegations surrounding fraudulent tax returns. Call 800-579-0997 or contact us today.