IRS Receives Judicial Approval for Cryptocurrency Conjurations for Circle, Poloniex purchasers

The IRS wants crypto tax data on a massive scale by asking on every tax return, it’s the latest hidden treasure initiative, and so much more. Now a Massachusetts federal court has issued an order authorizing the IRS to serve a subpoena from John Doe at Circle Internet Financial Inc. or its predecessors, subsidiaries, divisions and affiliates, including Poloniex LLC. The goal is to provide information on US taxpayers who made transactions in cryptocurrency worth at least $ 20,000 between 2016 and 2020. Circle bought Poloniex in 2018. Coinbase went through a similar boost a few years ago, and the IRS is on the lookout for more data. “Tools like the John Doe subpoenas approved today send a clear message to US taxpayers that the IRS is working to ensure they are fully compliant with the use of virtual currency,” said Chuck Rettig, commissioner for the IRS. “The John Doe subpoena is a step the IRS can use to expose those who are not properly reporting their virtual currency transactions. We will enforce the law if we discover systemic violations or fraud. ”

Bitcoin symbol in a digital raster microstructure – 3D illustration


IRS and Justice Department officials believe taxpayers may be using crypto to hide taxable income from the IRS. In the court order, U.S. Judge Richard G. Stearns found that there is a reasonable basis for believing that cryptocurrency users may have violated federal tax laws. The court order grants the IRS permission to serve a subpoena from John Doe on Circle. According to the court order, the summons is seeking information related to the “investigation of an identifiable group or group of people” by the IRS that the IRS can reasonably believe may have violated a provision of internal tax law[.]According to the copy of the subpoena filed with the petition, the IRS is asking Circle to provide records listing the U.S. taxpayers described above, as well as other documents related to their cryptocurrency transactions. This isn’t the first John Doe conjuration, or even the first for crypto. A California federal court had previously issued an order authorizing the IRS to serve a subpoena from John Doe at Coinbase Inc. This argument could be a useful playbook for what might happen to Circle. It appears that similar efforts are being made to track Kraken users as well, although there is still no court order that will solve this problem.

Coinbase took the case to court for a while, but Coinbase and the government eventually reached an agreement on a limited class of information that Coinbase would pass on. In a normal subpoena, the IRS looks for information about a specific taxpayer whose identity it knows. In contrast, a John Doe subpoena enables the IRS to obtain the names of all taxpayers in a particular group. A John Doe subpoena is great for tracking down account holders at a financial institution. It’s worth noting that it was a John Doe subpoena that literally blew the lid on the silent world of Swiss banking in 2008. At the time, a judge allowed the IRS to submit a John Doe subpoena to UBS for information about US taxpayers using Swiss accounts. Swiss law prohibits banks from revealing the identity of account holders, but the rest is history. Quite a few observers have noted that with this subpoena, the IRS started an offshore sweep of more than $ 50 billion.

The IRS instructs its own reviewers to use a John Doe incantation only after trying other routes. The IRS handbook states that it may be possible to obtain tax identities without using a John Doe subpoena, but success can bring success. After sniffing American taxpayers with UBS accounts, the IRS did the same with HSBC in India and Citibank and BofA in Belize. And while the IRS takes time to gather and process all of the information it can get, you can bet that the IRS will make good use of the information it gets. Remember that virtual currency is an ongoing focus of the IRS Criminal Investigation. Not so long ago, the IRS announced a virtual currency compliance campaign to address tax non-compliance related to virtual currency use by contacting and auditing taxpayers. The IRS says it will continue to actively address violations related to virtual currency transactions through a range of efforts ranging from taxpayer education to audits to criminal investigations. For some time now, the IRS has also been searching for user identities using software.

IRS Notice 2014-21 states that the virtual currency is owned for federal tax purposes and provides guidance on how general federal tax policies apply to virtual currency transactions. Taxpayers who fail to properly report the income tax consequences of transactions in virtual currencies may be subject to tax, penalties and interest. In some cases, taxpayers can be prosecuted. For more information on virtual currencies, visit As with the 10,000 warning letters the IRS issued to crypto holders some time ago, the development of John Doe Summons should be a wake-up call, even for people who have never looked at Circle. If you’re not trying to report taxes the way the IRS would like you to, the fact that you haven’t looked at Circle doesn’t mean you are clear. Plus, basic reporting isn’t that difficult. Modifying tax returns to apply for large tax refunds is a well-known audit trigger. The change to report extra income and pay extra taxes is usually much smaller and can lead to much bigger problems. Still, be careful with the IRS when changing your taxes.

Of course, not everyone will view this situation or their own facts with the same concern. However, if you know you are having reporting issues, it should be the past few years to file corrections and pay taxes without being asked. The IRS is generally far more forgiving when a taxpayer requests corrections prior to an audit or investigation. These letters can be viewed as a warning that might come next. If you want to be extra careful and restrict IRS access to documents, consider how to get legal and client rights with an accountant.