The US Internal Revenue Service is ramping up its efforts to collect taxes from crypto traders regardless of a 70% market slump.
The tax department has obtained a court order authorizing summons for records of US taxpayers that failed to report transactions and pay taxes on crypto profits.
Specifically, the IRS will issue what is known as a “John Doe summons” requiring MY Safra Bank to provide crypto transaction data for customers of the SFOX cryptocurrency broker that used the bank. According to the Department of Justice, SFOX has over 175,000 users and more than $12 billion in transactions since 2015.
Small Fry First
The revenue department has identified at least ten crypto traders and investors that used the broker and failed to report their transactions. What stands out, in this case, is that the brokerage is relatively small, suggesting that there could be more court orders for crypto transaction data to come.
IRS Commissioner Charles Rettig commented, “The government’s ability to obtain third-party information on those failing to report their gains from digital assets remains a critical tool in catching tax cheats.”
Deputy Assistant Attorney General David A. Hubbert confirmed that income and gains from cryptocurrency transactions were taxable and will be chased. The IRS strongly believes there are many unreported transactions and will increase its efforts to track them down, court orders being its primary weapon.
According to CPA and president of Gordon Law Group, Andrew Gordon, this has become a very high priority for the IRS. It is also possible that the department will try to match the growing pile of collected data with people’s tax returns to ascertain if they owe anything.
More Clarity Required
There has been a question on the front of the tax return form regarding virtual currencies since 2019. However, there is still a lot of uncertainty regarding transactions and taxes due. The virtual currency task force for the Association of International Certified Professional Accountants asked the IRS for more clarity in August.
Last year, the Biden Administration passed a $1.2 trillion bipartisan infrastructure bill that included a provision requiring annual tax reporting from crypto asset brokers starting in 2023.
Since the beginning of the 2022/23 financial year in April, crypto markets have retreated by over 50%, and many transactions since then would have been made at a loss.
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