Under a federal judge’s recent ruling, a New York City banking institution must produce records on U.S. customers of a digital asset trading platform who may owe tax on unreported crypto transactions.
On September 21, the U.S. District Court for the Southern District of New York granted the IRS’s petition to summons M.Y. Safra Bank, following an investigation into crypto trading platform SFOX.
The Justice Department described SFOX as “a cryptocurrency prime dealer and trading platform that connects digital currency exchanges, over-the-counter virtual currency brokers and liquidity providers globally.” The platform boasts more than 175,000 users and has facilitated over $12 billion since 2014.
Making a case for reporting of income
In the petition, the IRS explained that taxpayers “must report income, gain or loss from all taxable transactions involving virtual currency on their federal income tax returns for the year of the transactions, regardless of the amount or whether they received a payee statement or information return.”
Judge Paul Gardephe agreed there was a “reasonable basis for believing” at least 10 individuals may have failed to disclose and pay tax on applicable gains from crypto transactions conducted by the taxpayers via SFOX, which uses M.Y. Safra’s banking services. The agency can make this determination by obtaining the bank records.
The IRS, and the federal government overall, have begun cracking down on tax evasion schemes that take advantage of Web 3.0 crypto technologies.
Reports IRS Commissioner Chuck Rettig, “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. The court’s granting of the John Doe summons reinforces our ongoing, significant efforts to ensure that everyone pays their fair share. Taxpayers earning income from digital asset transactions need to come into compliance with their filing and reporting responsibilities.”
For the record on tax liabilities
Although M.Y. Safra had been issued summonses, the Justice Department was clear that there was no allegation that the bank engaged in any unlawful activity. Rather, the summonses issued serve only to identify the unidentified individuals suspected of having tax liabilities.
In response, SFOX said it would review “internally and with external legal counsel around next steps,” and “always adheres to the law.”
Magone & Company specializes in complex tax cases. To sort out your situation, call our office at (973) 301-2300 today or reach out.