The IRS is Looking For the Names of That Customer Who Trade Over $20,000 in Cryptocurrencies


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The Internal Revenue Service (IRS) can move forward in its efforts to uncover high-net-worth customers at Circle Internet Financial, a federal judge ruled.

A judge has granted an IRS request to issue “John Doe Summons” to all Circle and Poloniex customers who transacted $20,000 or more in cryptocurrencies between 2016 and 2020. Such a subpoena is a tactic the IRS uses to request information about people it cannot identify by name. (Circle spun off Poloniex in 2019 after buying the exchange for $400 million in 2018.)

The IRS told the court it needs the documents to ensure cryptocurrency users pay taxes. He believes many don’t, and now he’s subpoenaing records to prove it. The IRS said that doesn’t necessarily mean Circle broke the law. It represents a continuation of the US tax collector taking cryptocurrency investments more seriously for the 2020 tax year.

What it matters

The IRS is now seeking information on former Poloniex and Circle customers who transacted more than $20,000 worth of cryptocurrencies between 2016 and 2020, according to a US Department of Justice press release published on Thursday. The tax collector has filed a “John Doe” summons, meaning he doesn’t yet know the names of the people he’s looking for. The press release explained that this may be because “taxpayers can use [cryptocurrencies] to hide taxable income from the IRS” due to the pseudonymous nature of cryptocurrencies.

Break it down

This is not news. This is essentially how the IRS sought the names of Coinbase customers in 2016. Coinbase fought the subpoena at the time and was able to secure a partial victory: While the IRS wanted information for up to 500,000 customers, the exchange ended up only submitting information for about 13,000. The IRS and the Justice Department’s tax division are also reportedly looking at Kraken, though a spokesperson told me, “Kraken has not yet received a subpoena for client records.” According to public court records, Chief Judge Joseph Spero of the Northern District of California has some concerns about the scope of the subpoena. He ordered the US government to explain how its subpoenas met legal requirements to be “narrowly tailored”.

All of this looks like the IRS is just expanding its ongoing efforts to collect taxes from cryptocurrency users. Last year, it called on contractors to help it sort through the records of cryptocurrency users. The recent bull run means there is likely to be an influx of people reporting gains (or not reporting, hence the IRS challenge).

The next steps will be critical: After the IRS received information about Coinbase’s customers, it sent letters to the exchange’s users warning them that they may have inaccurately reported their tax obligations to the agency and should refile or risk an audit. The IRS’s “Taxpayer Advocate Service” later said the letters may have violated taxpayer rights, pointing to the fact that not every recipient of the letter was audited.

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