The Internal Revenue Service (IRS) seeks to go after customers of digital assets prime dealer SFOX Inc. The U.S. taxation agency has submitted court filings in New York and Los Angeles for federal judges to let it serve summonses to the exchange to compel them to turn in user details for tax auditing.
According to a Bloomberg report, the filings also mention M.Y. Safra Bank, which partnered with SFOX in 2019 to offer its customers cash deposit accounts backed by the FDIC. The IRS wants accounts and transaction records of users with digital assets transactions that exceed $20,000 in any year from 2016 to 2021 from the exchange.
The government estimates that SFOX’s more than 175,000 users have made $12 billion in transactions since 2015. The cases are In the Matter of the Tax Liabilities of John Does, 22-mc-00150, U.S. District Court, Central District of California (Los Angeles); and In the Matter of the Tax Liabilities of John Does, 22-mc-00213, U.S. District Court, Southern District of New York (Manhattan).
“Transactions in cryptocurrency have grown substantially in recent years, and the IRS is concerned that taxpayers are not properly reporting these transactions on their tax returns,” a lawyer for the government said in the court papers.
This is not the first time the IRS has made similar filings to force digital assets investors to pay the required taxes on their holdings. Previously, the IRS had served similar “John Doe” summonses, seeking user information from Kraken, Circle Internet Financial, and Coinbase (NASDAQ: COIN).
The IRS has continued to revise its digital assets tax reporting requirements, introducing amendments to its 1040 tax form in 2021. Despite this, a Barclays report in May indicated that digital assets investor tax shortfall ran into billions and made up a significant portion of the total tax shortfall in recent years.
IRS pushes part of broader U.S. digital assets regulatory efforts
The increased effort to tax digital asset investors is part of increased scrutiny of the digital assets industry among U.S. authorities. Similar to the IRS, the Treasury Department, SEC, and CFTC are also lobbying for more regulatory oversight of digital assets.
One such regulatory push is enshrined in the controversial President Joe Biden Infrastructure Bill introduced last year. The bill proposes introducing new tax reporting requirements for digital assets “brokers” from as early as the 2023 fiscal year.
The proposal has been met with strong opposition from the digital assets community. In a lawsuit by Coin Center, the digital assets lobby group described the proposed amendments as unconstitutional.
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