IRS seeks SFOX customer information in cryptocurrency tax push

Accounting

The Internal Revenue Service is seeking to identify customers of cryptocurrency prime dealer SFOX Inc. as part of its efforts to force crypto investors to pay taxes on their holdings.

In court filings in New York and Los Angeles, the tax authority asked federal judges to let it serve summonses on SFOX and M.Y. Safra Bank, which partnered with SFOX in 2019 to offer its customers cash deposit accounts backed by the Federal Deposit Insurance Corporation. The IRS is seeking account and transaction records for users with cryptocurrency transactions over $20,000 in any year from 2016 to 2021.

“Transactions in cryptocurrency have grown substantially in recent years, and the IRS is concerned that taxpayers are not properly reporting these transactions on their tax returns,” a lawyer for the government said in court papers filed Monday in Los Angeles.

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Internal Revenue Service headquarters in Washington, D.C.

Al Drago/Bloomberg

SFOX and M.Y. Safra Bank didn’t immediately respond to messages seeking comment.

According to a May analysis by Barclays Plc, cryptocurrency investors are paying less than half the taxes they owe. SFOX has more than 175,000 users who have made $12 billion in transactions since 2015, according to the government.

The IRS push to collect taxes on cryptocurrency is part of a broader effort by U.S. lawmakers and regulators, including the Securities and Exchange Commission and the Commodity Futures Trading Commission, to extend their oversight to crypto trading.

The U.S. has served similar information demands, called “John Doe” summonses, seeking user information from Kraken, Circle Internet Financial and Coinbase. 

The cases are In the Matter of the Tax Liabilities of John Does, 22-mc-00150, U.S. District Court, Central District of California (Los Angeles); and In the Matter of the Tax Liabilities of John Does, 22-mc-00213, U.S. District Court, Southern District of New York (Manhattan).

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