Crypto Traders Beware: IRS Gets Greenlight on Brokerage Inquiry

The IRS will soon have information on all US taxpayers that conducted $20,000 or more in trades on SFOX between 2016 and 2021

article-image

Blockworks exclusive art by axel rangel

share

key takeaways

  • IRS is after traders who may have concealed gains made via crypto brokerage SFOX
  • A John Doe summons allows the IRS to collect information about unidentified taxpayers who may have evaded IRS payments

The IRS is hot on the trail of any deep-pocketed investors who dodged cryptocurrency taxes pertaining to brokerage transactions. 

A federal judge Tuesday authorized the IRS to issue a John Doe summons — a tool used to collect information about unknown taxpayers — to institutional crypto broker SFOX Tuesday. 

SFOX will have to hand over information about all customers who were US taxpayers and traded at least $20,000 in digital assets between 2016 and 2021.

The judge has found “reasonable basis for believing that individuals conducting at least $20,000 in cryptocurrency transactions may have failed to comply with federal tax laws,” the Department of Justice said in a statement

The IRS has been keen to crack down on crypto transactions, which are typically treated like stocks and subject to capital gains tax, in recent years. The agency has been particularly focused on monitoring staking activity and the non-fungible token (NFT) market. 

The IRS has sought and been awarded John Doe summons for other crypto businesses, including stablecoin USDC overseer Circle in April 2021 and crypto exchange Kraken one month later. 

“The John Doe summons remains a highly valuable enforcement tool that the U.S. government will use again and again to catch tax cheats and this is yet one more example of that,” IRS Commissioner Chuck Rettig said in a statement. “I urge all taxpayers to come into compliance with their filing and reporting responsibilities and avoid compromising themselves in schemes that may ultimately go badly for them.”

It is up to the taxpayer to report their own gains to the IRS, but exchanges hold key know-your-customer and trading information that regulators want. 

“Reporting is a huge problem right now, because exchanges are doing different things,” Shehan Chandrasekera, head of tax at Coin Tracker, told Blockworks ahead of the 2021 tax season. “If you take a look at centralized exchanges, they issue, I would say, four different types of tax forms, depending on how they interpret the existing tax codes, given the gray area, so people are very confused.”

Investors using decentralized exchanges or more than one exchange may have a particularly difficult time.

“Exchanges only have visibility into what’s happening inside that exchange,” Chandrasekera said. “But to figure out your taxes correctly, you need to connect all your wallets and exchanges and figure out that actual capital gain or loss.”

The IRS has not alleged any wrongdoing on SFOX’s part.


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Javits Center North | 445 11th Ave

Tues - Thurs, March 18 - 20, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

kamino cover.jpg

Research

Kamino has solidified its position as the leading money market on Solana and is emerging as a DeFi bluechip. Although DeFi competition is fierce, Kamino has kept iterating on its product to provide the best-in-class UX, paired with a robust risk management framework and battle-tested infrastructure. Given the rollout of Kamino Lend V2, the protocol may scale aggressively over the coming months, penetrating previously untapped markets in Solana DeFi.

article-image

Also in the tokenized fund space, Franklin Templeton launches on Base and Securitize hits $1 billion in tokenized RWA onchain

article-image

It turns out that bitcoin never actually hit an all-time high in March. Thanks a lot, inflation.

article-image

Spire, Citrea and Nillion also announced raises this week

article-image

The latest recipient of an SEC Wells notice is a Web3 gaming company

article-image

Thursday’s selloff was led by tech stocks, triggered by disappointing outlooks from giants Meta and Microsoft

article-image

Historically, positive returns have been a bit more of a toss-up during the year’s 11th month