IRS targets crypto-tax evaders with MIN Safra bank subpoena over SFOX data

The US Internal Revenue Service (IRS) has been granted the authority to issue a “John Doe” subpoena to MY Safra Bank, a New York court ruled on Thursday. The summons will oblige the bank to produce information on customers who may have failed to report and pay tax on crypto transactions through prime dealer SFOX.

In its petition in support of the subpoena, the IRS pointed to “significant deficiencies in tax compliance” related to cryptocurrency transactions made through the SFOX platform.

“Taxpayers who deal in cryptocurrency should understand that income and gains from cryptocurrency transactions are taxable,” U.S. Attorney Damian Williams said in a statement, adding that the information requested by the subpoena “will help ensure that cryptocurrency owners comply with tax laws.”

SFOX, which has over 175,000 registered users who have collectively transacted more than $12 billion since 2015, connects crypto exchanges, over-the-counter (OTC) virtual currency brokers and liquidity providers.

MY Safra Bank partnered with SFOX in 2019 to offer its customers cash deposit accounts backed by the Federal Deposit Insurance Corporation, with users able to use these accounts to buy and sell digital assets.

“The government’s ability to obtain third-party information about those who fail to report gains from digital assets remains a critical tool for catching tax cheats,” said IRS Commissioner Charles Rettig.

According to Rettig, the court’s decision to grant the subpoena reinforces our ongoing, significant efforts to ensure that everyone pays their fair share.

“Taxpayers who earn income from digital asset transactions must comply with their filing and reporting responsibilities,” he added.

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The IRS is hunting crypto tax evaders

This is not the first time a US court has given the IRS the right to collect data from customers involved in cryptocurrency transactions.

In August of this year, a California court authorized the US Internal Revenue Service to serve a subpoena against SFOX, requesting information on any “US taxpayers who conducted at least the equivalent of $20,000 in cryptocurrency transactions between 2016 and 2021 with or through SFOX. “

Some people included in a petition included an individual who “allegedly engaged in a Ponzi scheme” and received approximately $1 million in deposits through SFOX but did not report it to the IRS in 2016, 2017 or 2018. Other individuals allegedly deposited thousands of dollars worth of Bitcoin and other cryptocurrency in SFOX accounts, exchanged them for dollars, transferred the money to personal bank accounts, and then failed to report any gains or losses from the transactions.

In 2017, the courts authorized the IRS to issue a “John Doe” subpoena to crypto exchanges Coin base. It resulted in the company sharing information about approximately 14,000 of its users.

Last April, the courts again approved “John Doe” subpoenas issued to crypto exchange Kraken and Circle, the issuer of stablecoin USDC.