John Doe summonses are tools used by the IRS to obtain information about people the IRS believes may not be properly reporting information on their tax returns or otherwise not complying with the tax laws. They are called “John Doe” summonses because the IRS does not know the identity of the people for whom the IRS is seeking information. Court approval is needed for the IRS to issue John Doe summonses.
Just last week, the government once again sought court approval to serve John Doe summonses. (See here and here). Specifically, the government sought court approval to serve John Doe summonses on cryptocurrency prime dealer and trading platform Ox Labs Inc. and Subsidiaries (collectively “SFOX”) and M.Y. Safra Bank (“M.Y. Safra”). M.Y. Safra partnered with SFOX to allow SFOX users access to cash deposit bank accounts. The IRS is seeking information from SFOX and M.Y. Safra about SFOX users with at least $20,000 in cryptocurrency transaction value in any year from 2016 through 2021.
UPDATE: One of the government's John Doe summons requests has already been approved. The government is now authorized to serve a John Doe summons on SFOX. (The M.Y. Safra summons request has not yet been approved.)
The IRS has successfully used John Doe summonses to obtain customer information from numerous cryptocurrency exchanges already, and consistent with IRS public comments this trend is likely to continue.
Although this author believes that based on current legislative proposals, Forms 1099-B may not be required until 2026 (under present law, they are currently required to be issued in 2024), the IRS is unlikely to wait until then to try to work on issues relating to digital assets. The IRS has publicly stated that cryptocurrency enforcement is one of its highest priorities. Indeed, there are rumors that the IRS is working on a special Form 1099 for digital assets, with a rumored Form 1099-DA (“DA” for digital assets) replacing Form 1099-B.
If you have any concerns about whether you may have tax issues relating to digital assets or are already under audit relating, at least in part, to digital asset issues, you should be aware that the IRS is a formidable adversary.
If you have any questions about this article or any civil or criminal tax matter, please contact me at email@example.com or 214-749-2417.