Key Takeaways
- A court approved the issuance of a John Doe summons by the IRS to a bank aimed at identifying individuals who are potentially avoiding their income tax obligations relating to cryptocurrency transactions. The bank was targeted in connection with services it offered to users of sFOX, which received a summons of its own last month.
- The IRS and prosecuting agencies have made clear that John Doe summonses are a powerful tool in pursuing virtual currency underreporting and their use will likely continue into 2023.
On Sept. 23, 2022, a U.S. District Court judge approved an IRS John Doe summons served on a New York-based bank seeking account records, including account opening documents and records of deposits, withdrawals, transfers and wires, of clients who used sFOX for cryptocurrency services. The summons was issued in connection with partnered services the bank offered to sFOX clients granting customers access to FDIC-backed cash deposit accounts. sFOX users were able to use their funds at the bank directly to buy and sell digital assets on the sFOX platform. The IRS expects the information will identify sFOX users who may have underreported their tax obligations.
The summons stems from a John Doe summons issued to sFOX last month probing into its users’ potential noncompliance with tax reporting and payment obligations. The IRS’s belief that it will find instances of noncompliance is based on several known sFOX clients who did not meet their…
