The U.S. taxman is clamping down on potential tax evaders by going to court to demand information from a cryptocurrency dealer.
The Internal Revenue Service (IRS) has asked federal judges to give it the authority to serve summonses on SFOX. The request also extends to M.Y. Safra Bank, a financial institution headquartered in New York.
The reason for the increased scrutiny of both entities stems from their partnership back in 2019 that allowed customers access to cash deposit accounts that were backed by the Federal Deposit Insurance Corporation (FDIC).
The primary focus of the IRS is accounts with cryptocurrency transaction records of over $20,000 between 2016 and 2021.
Both SFOX and M.Y. Safra Bank are yet to respond to the agency, according to Bloomberg. A report claims that SFOX’s 175,000 users have made $12 billion worth of transactions.
IRS claims crypto users not paying taxes in full
The IRS has always harbored suspicions that investors in digital assets and currencies are not declaring their taxes in full.
Tracking the financial activity of traders in the circle is made difficult by the private nature of digital assets, obfuscating the identities of users.
“Transactions in cryptocurrencies have grown substantially in recent years, and the IRS is concerned that taxpayers are not properly reporting these transactions on their tax returns,” said a U.S. government attorney.
The cases are in the nature of “The Matter of the Tax Liabilities of John Does” and over the last few years, similar filings have been made against other digital asset companies like Kraken, Circle, and Coinbase.
Renewed regulatory push
Across the board, regulators are working round the clock to clamp down on dubious cryptocurrency activity. The Securities and Exchange Commission (SEC) has disclosed that it had opened investigations in leading firms in the ecosystem while still embroiled in long-running lawsuits over the issuance of unregistered securities.
According to the IRS rules, buying digital assets with U.S. dollars and holding them in your wallet is not subject to tax. However, the sale of the asset or placing of trades makes it taxable and traders are expected to file their taxes appropriately.