IRS Issues Another “John Doe” Summons to Identify Cryptocurrency InvestorsArticles/News, Offshore Account Update
Posted on May 14, 2021 | Share
The IRS is prioritizing cryptocurrency tax compliance in 2021. In addition to sending warning letters to known cryptocurrency investors, the IRS is also seeking to identify investors who have failed to report their cryptocurrency investments on their federal returns. As New Jersey tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, explains, it is doing so through the use of what is known as a “John Doe” summons.
IRS Uses John Doe Summonses to Identify Tax Law Violators
A John Doe summons is an investigative tool that allows the IRS to gather information about unspecified taxpayers from a third-party source. John Doe summonses require court approval, but the IRS has been successful in obtaining court approval under a broad range of scenarios.
The IRS’ use of John Doe summonses is not new. In the past, the IRS has used John Doe summonses to obtain information about taxpayers from credit card companies and online payment services, such as PayPal. In 2016, the IRS obtained court approval for a John Doe subpoena for Coinbase—an event that is well-known within cryptocurrency circles.
IRS Issues John Doe Summons to Circle Internet Financial Inc.
On April 1, 2021, the U.S. Department of Justice announced that a federal court has authorized the IRS to issue a John Doe subpoena to Circle Internet Financial Inc. (“Circle”). Circle operates a cryptocurrency exchange platform, similar to Coinbase. According to the announcement, the John Doe subpoena seeks, “information about U.S. taxpayers who conducted at least the equivalent of $20,000 in transactions in cryptocurrency during the years 2016 to 2020,” through Circle’s exchange platform. Specifically, the IRS is asking Circle to disclose, “records identifying U.S. taxpayers . . . along with other documents relating to their cryptocurrency transactions.”
Notably, the IRS is not alleging any wrongdoing on the part of Circle. Instead, it is simply seeking to use Circle as a source of information. Once the IRS receives taxpayers’ information from Circle, it can then compare Circle’s records with these taxpayers’ filings in order to determine whether they have accurately reported their cryptocurrency-related tax liability.
Have You Accurately Reported Your Cryptocurrency-Related Tax Liability?
Whether you invest in cryptocurrency through Circle or any other exchange, now is a good time to make sure that you are up-to-date on your cryptocurrency-related tax obligations. This means ensuring that both: (i) you have reported all relevant income to the IRS; and, (ii) you have paid what you owe.
If you are behind, addressing the issue proactively can significantly mitigate your risk of liability. With that said, you need to be very careful about how you remedy the issue. New Jersey tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, can help you make informed decisions; and, if you need legal advice, we encourage you to contact us promptly.
Request an Appointment with New Jersey Tax Lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group
Do you need legal advice about cryptocurrency taxes? To request a confidential consultation with New Jersey tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, call 201-355-8202, email email@example.com or contact us online now.