According to a Department of Justice press release, a court in northern California recently authorized another John Doe summons seeking potential incriminating information from a company involved in the maintenance of cryptocurrencies. Following a disturbing trend that could land some virtual currency investors in hot water, this John Doe summons emphasizes the IRS’s recent commitment to crack down on those who fail to pay tax on cryptocurrency. If you have generated significant amounts of cryptocurrency income but failed to report such income or your tax return, it is in your best interest to discuss your potential criminal tax exposure with an experienced tax defense attorney. Cryptocurrency income can be generated by being paid in cryptocurrency for produce or services, mining activity, exchanging one type of crypto for another even without going to fiat, airdrops, and the equivalent, and spending crypto that has appreciated.
The Department of Justice sought, and a district court in the Northern District of California granted a John Doe summons against Payward Ventures Inc. and its affiliates. Payward does business under the more commonly known name, Kraken, and is a cryptocurrency exchange. Using the Kraken platform, users can buy, sell, and store interests in cryptocurrency.
John Doe summons are unique in the U.S. criminal justice system as they do not require prosecutors to identify, with particularity, what they are looking for or whom, specifically, their search relates to. The recently approved John Doe summons against Kraken requests an incredibly broad amount of information, including all information related to customers with at least $20,000 of cryptocurrency transactions through transactions between 2016 and 2020.
John Doe summons related to cryptocurrency are becoming more and more commonplace. Just last month, a federal district court in Massachusetts granted an order allowing the IRS to serve a similar John Doe summons to Circle, another cryptocurrency exchange operating in the New England area.
In Notice 2014-21, the IRS took the position that virtual currency, such as Bitcoin and Ethereum, were property, rather than currency. The practical result of that designation is that when a taxpayer acquires virtual currency, they establish a basis in the asset. When the taxpayer eventually disposes of the asset, the difference between the amount they receive, and their initial cost basis is treated as either taxable gain or loss. Recently, the IRS has expressed their belief that many taxpayers have bought and sold cryptocurrency without reporting the associated gain on their individual tax returns. These John Doe summons are an IRS attempt to determine who may have broken the law by not properly paying tax on their cryptocurrency transactions.
If you have engaged in cryptocurrency transactions but have not reported gains on your individual tax return as required by law, it is in your best interest to contact an experienced cryptocurrency tax defense attorney. Together, you will work to determine your levels of exposure and decide the appropriate course of action to take to bring you into tax compliance. A major benefit of being represented by a seasoned tax lawyer is not having to go up against the IRS alone. Instead, you can focus on the things that matter, like your family and business.
Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-reported income on Cryptocurrency coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosurebefore the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, KovelCPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!
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