The United States Internal Revenue Service (IRS) has been authorized by a court to issue a so-called “John Doe” summons against M.Y. Safra Bank. The request follows the failure of crypto users who use the bank to pay their transaction taxes.
The IRS Gets Court Approval to Seek Tax Information
Following the incident of customers of SFOX, a crypto brokerage firm, evading tax, a U.S. court has ordered that the facilitating bank, M.Y. Safra, give the IRS access to the defaulter’s information.
The partnership between M.Y. Safra Bank and SFOX began in 2019. The bank offers customers of the crypto brokerage platform cash-deposit bank account services, which they use in their transactions.
IRS supported their petition by highlighting that even though taxpayers engaging in crypto transactions must report their gains and losses, the service has recorded significant non-compliance relating to digital asset transactions.
According to Attorney Damian Williams, taxpayers must report their liabilities on their returns by law. The law is clearly outlined, whether it is from cryptocurrency transactions or other commodities.
As a result of the IRS discrepancies experienced in the crypto industry, the authorities will use all tools at their disposal to bring the culprits to book.
Meanwhile, the IRS defines crypto transactions as properties by levying capital gains tax on all transactions, profits, or losses. The IRS has previously obtained the power to serve SFOX with a John Doe summons in August.
Similarly, the service sought information on customers (U.S. taxpayers) who had conducted at least $20,000 in transactions in crypto from 2016 to 2021. However, M.Y. Safra Bank and SFOX are not guilty of violating any law.
What is the John Doe Summons?
A John Doe Summons is an investigative mechanism employed by the court to seek further information on tax evaders. U.S. taxpayers are required by law to be transparent in their tax return reporting. And because of the anonymity pattern of transactions in the crypto industry, it becomes challenging for the IRS to enforce broader compliance.
However, the law provides the tax authority with the means to crack down on tax defaulters. To ensure enforcement, the IRS, through court authority, uses the John Doe summons as a tool to compel digital asset services providers to release user information. With this information, the agency can determine the identity of U.S. taxpayers who failed to comply with the directives.
Moreover, the IRS had had modest success utilizing the John Doe summonses. Many crypto exchanges were issued John Doe summons by the tax body. Kraken, Coinbase, and Circle are a few examples of crypto service providers that have been issued the summons.
Coinbase’s case with the tax agency was more profound. In 2016, the regulator issued a John Doe summons to Coinbase, which the exchange failed to adhere to. After a prolonged court tussle, the IRS won a partial enforcement order against Coinbase in 2018.
Meanwhile, these successes show that the investigative tool used against crypto exchanges yields the desired results.