The IRS is stepping up efforts to crack down on tax evaders
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(Kitco News) – Regulators appear to be making up for lost time on the crypto front, as Thursday brought news that the Internal Revenue Service has set its sights on cryptocurrency prime dealer SFOX Inc., seeking customer records to ensure users pay their taxes .
Based on court documents in New York and Los Angeles, the agency has asked federal judges for approval to serve subpoenas on SFOX and MY Safra Bank, SFOX’s banking partner, which offered customers cash deposit accounts backed by the Federal Deposit Insurance Corporation.
The main focus of the investigation is on customers who made $20,000 worth of cryptocurrency transactions in one year, from 2016 to 2021. According to the rules set by the IRS, users can buy digital assets with US dollars and keep them in their wallets without being taxed. However, when an asset is sold or traded, it becomes a taxable event, and traders are expected to report these activities when they file their taxes.
According to documents provided by the government, the 175,000 registered users of SFOX have completed more than $12 billion in transactions since 2015.
Founded in 2014, SFOX is backed by several well-known firms, including Digital Currency Group, Blockchain Capital, Y Combinator and Airbnb co-founder Nathan Belcharczy.
Earlier in 2022, SFOX was approved by the state of Wyoming for a trust charter, which allowed the firm to provide custody services and other crypto-related services to institutional clients. The charter allowed the firm to operate as SAFE Trust Company, serving institutional clients, private clients and advisors.
The hunt for crypto tax evaders
In May, Barclays Plc released an analysis showing cryptocurrency investors pay less than half the taxes they own, prompting tax authorities to make cracking down on the industry a top priority.
According to court papers filed Monday in Los Angeles, “cryptocurrency transactions have grown significantly in recent years, and the IRS is concerned that taxpayers are not properly reporting these transactions on their tax returns.”
SFOX is not the first exchange to face such demands from the IRS as several large US-based organizations, including Coinbase, Kraken and Circle Internet Financial, have been subject to these “John Doe” subpoenas from federal regulators.
This week’s actions against SFOX come amid a broader push by US regulators to establish greater oversight of the crypto industry. Recent developments include the introduction of a bill to classify Bitcoin (BTC) and Ethereum (ETH) as securities and the passage of a proposal that would require hedge funds to report their exposure to cryptocurrency.
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