The ability to issue “John Doe” summons to M.Y. Safra Bank has been authorized by the U.S. Internal Revenue Service (IRS), enabling the tax authority to seek information on clients of the bank’s partner SFOX, a crypto primary broker.

IRS’ Jurisdiction To Investigate

The IRS is allowed by the court order, which U.S. district judge Paul G. Gardephe granted, to issue M.Y. Safra Bank with a summons demanding for details on SFOX customers who might not have disclosed their cryptocurrency transactions on tax forms.

In 2019, M.Y. Safra Bank and SFOX teamed up to provide SFOX users with access to cash-deposit bank accounts. At least ten SFOX users who violated the law by failing to declare their cryptocurrency transactions have been located by the IRS.

Every cryptocurrency transaction is subject to capital gains tax since the IRS views them as property. The IRS was given permission to serve a John Doe summons on SFOX directly in August. The IRS was asking for details about “U.S. taxpayers who completed at least the equivalent of $20,000 in bitcoin transactions between 2016 and 2021 with or through SFOX.” at the time.

Both M.Y. Safra Bank and SFOX are not charged with breaking any laws. The U.S. attorney for the Southern District of New York, Damian Williams, said in a statement that tax liabilities resulting from cryptocurrency transactions are not exempt and must be accurately disclosed by taxpayers on their forms. The government is dedicated to finding taxpayers who misrepresented their tax duties by failing to declare cryptocurrency transactions and making sure that everyone pays their fair part by using all of the tools at its disposal, including John Doe subpoenas.

What Are the Penalties?

Under federal tax evasion law, tax fraud charges stemming from failure to pay taxes on bitcoin gains are levied. An income earner commits an infraction when they knowingly try to avoid paying taxes.

Anyone who fails to file taxable income is subject to fines of up to $100,000 and a maximum sentence of three years in jail, according to I.R.C. 7206. Tax evasion efforts carry a maximum five-year prison sentence and a $250,000 fine.

How Will IRS Find Crypto Tax Evaders?

The IRS uses subpoenas/summons among other ways to keep track on crypto transactions. Several exchanges have been served with subpoenas in recent years demanding the disclosure of certain user accounts. For example, the IRS requested information from Coinbase regarding over 13,000 accounts, including name, taxpayer identification number, address, birth date, transaction logs, account activity records, and all account statements or invoices. In a similar vein, the IRS has mandated the disclosure of U.S. taxpayer data utilized on other exchanges, including Circle, Kraken, and Bitstamp.

The challenge for prosecutors is demonstrating that the evader’s activities were purposeful or premeditated. Cryptocurrency users can completely avoid punishment by claiming they were ignorant that any debt obligations were brought on by their coin gains. However, while deciding whether the defendant was aware of their tax duties, courts will take into account any pertinent material.

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