Another day, another crypto scandal. The Southern District of New York has authorized the IRS to (should) break into the records of US taxpayers who are clients of the Crypto broker SFOX. The new IRS subpoena specifically targets MY Safra Bank, a New York-based financial institution offering cash deposits to bank accounts for SFOX users.
According to this, there are approximately 175,000 SFOX users who have collectively been involved in crypto transactions worth more than $12 billion since 2015 a press release from the Southern District of New York US AAttorney OOffice. And the IRS believes many of these investors skipped their tax payments. The agency noted that it previously identified at least ten SFOX clients who failed to report their transactions.
From the press release:
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.
This isn’t the first time the IRS has launched an investigation into a major crypto trader. A California dish authorized a probe included in Kraken’s records in May 2021. And Massachusetts authorized a search into Circle’s investors last year too. Back in 2017, Coinbase faced thisis own Visit from the tax office.
In each case, the IRS was issued a “John Doe Summons,” which is essentially a blank investigative check. The agency does not need to know the identity of who You just search from the start What they seek (ie tax evasion). Using SFOX’s user base, the agency narrows its search to the subset of investors with $20,000 or more in annual crypto exchanges and looks at records between January 1, 2016 and December 31, 2021.
“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 have also used MY Safra’s services – which the IRS will then associate may use information with others to verify that those users are complying with internal tax laws,” the New York Attorney’s Office said.
In the new SFOX investigative announcement, officials were careful to remind everyone that “taxpayers who transact in cryptocurrencies are required to report any related gains and losses on their tax returns.”
Still, crypto bros have been doing their best for years to ignore the IRS while reaping the benefits (or consequences) of the heavily unregulated industry. 2018 e.g. less than 100 people using popular tax reporting software Credit Karma reported bitcoin holdings in their annual tax returns as of tax day that year. According to IRS, only 802 people reported profits from Bitcoin in 2015. And still, in 2022, an estimated half of all cryptocurrency investors are not paying the taxes they owe an analysis from Barclays Plc.
As the press release summed it up, “The IRS’s experience has revealed significant tax compliance deficiencies in relation to cryptocurrencies and other digital assets.” And now it looks like the crackdown may finally be coming. In addition to the multiple IRS probes and a Presidential Advance for regulation is the SEC also dig in. Just last week, the commission’s chairman hinted that the second-largest cryptocurrency could be at the bottom classified as a securityand fall within the purview of the SEC.