cryptoassets regulation

A U.S. federal court granted an order authorizing tax authorities to seek information on crypto traders suspected of evading taxes.

The order, entered by a federal court in the central district of California, allows the Internal Revenue Service (IRS) to serve a so-called “John Doe” summons on SFOX, a crypto dealer based in Los Angeles. The order seeks information on taxpayers who may have used crypto transactions to evade taxes between 2016 and 2021.

The IRS uses these summonses to obtain information about possible tax law violations by unknown taxpayers.

“This John Doe summons directs SFOX to produce records identifying U.S. taxpayers who have used its services, along with other documents relating to their cryptocurrency transactions,” the U.S. Department of Justice (DoJ) said in a release.

“Because transactions in cryptocurrencies can be difficult to trace and have an inherently pseudo-anonymous aspect, taxpayers may be using them to hide taxable income from the IRS,” it noted.

The order makes no allegations against the crypto firm itself.

“Taxpayers who transact with cryptocurrency should understand that income and gains from cryptocurrency transactions are taxable,” said deputy assistant attorney general David Hubbert of the DoJ’s tax division.

“The information sought by the summons approved today will help to ensure that cryptocurrency owners are following the tax laws,” he added.

According to guidance from the IRS, virtual currencies that can be converted into traditional currency are considered property for tax purposes, and taxpayers can have gains and losses on crypto trades.