Department of Justice Pursuing Cryptocurrency Users

According to a recent press release from the Department of Justice (DOJ), a federal court in California issued an order authorizing the IRS to serve a “John Doe summons” on SFOX, a cryptocurrency dealer headquartered in Los Angeles. The order requires SFOX to provide the IRS with data on U.S. taxpayers who conducted at least $20,000 in cryptocurrency transactions between 2016 and 2021 with the company.

Crypto assets have long been valued for the anonymity that some users believe they provide. It would come as no surprise then to learn that taxpayers may use cryptocurrencies to try to hide taxable income from the IRS.

The IRS has issued previous guidance regarding taxation of cryptocurrency transactions. That guidance provides that virtual currencies which can be converted into traditional currency are considered property for tax purposes. Therefore, taxpayers would recognize gains or losses on the sale or exchange of virtual currency, giving consideration to the taxpayer’s basis in the property (usually, the taxpayer’s cost to purchase the crypto).

The court in this case determined that there was a reasonable basis to the government’s argument that individuals conducting at least $20,000 in cryptocurrency transactions may have failed to comply with federal tax laws. This conclusion formed the basis of the John Doe summons, requiring the crypto dealer to disclose information about its customers and their transactions to the IRS.

Have questions about how virtual currency or crypto asset investing will impact your tax return? Schreiber Accounting and Advisory can help with tax preparation and planning services. Contact the firm for more information.

Material discussed is for informational purposes only. It is not to be interpreted as investment, tax, or legal advice. Individual situations vary, and this information should only be relied upon when coordinated with individual professional advice.