I have some sad news for you. If you thought your crypto where safe from the IRS, then my friend. You better think again. As it is right now, the IRS can demand access to your trading data.
IRS wins in court
In August of 2020 a Coinbase user filed suit against the IRS arguing that they violated his constitutional rights when they tried to access his trading data. The man argued that the IRS obtaining his trading data through a "John Doe" summons had violated his rights. He argued that the request violated both his Fourth and Fifth Amendments rights. These are the Amendments that protect you from unlawful searches. The Amendment gives you the right to remain silent.
His fights with the IRS stem back to as early as 2016. As this was when the IRS initially asked Coinbaise to surrender user data. Despite his and Coinbase's appeal the company where forced to hand over some of its largest accounts trading data. Later the person appealed this verdict and then won the right to file suit against the IRS, which he did.
Sadly he has now lost his suit against the IRS. Meaning that they now can continue to use Jon Doe summons to request users' trading data. And This would now be applicable to not just Coinbase, but any trading platform that is operating within the US. The only bright side of this is the way things are looking to be heading with the SEC, there probably won't be many crypto traders still operating in the US.
And in case you like me do not know what a John Doe summons is, let me enlighten you just like I just was. I assume that you at least are familiar with the term "John Doe" or "Jane Doe" from movies, tv series, books, or any other of numerous places. It is the term given to a dead body that is unidentified. Here the term is used in the same way. Meaning someone unknown.
The purpose of a John Doe summons is to identify and gather information about individuals whose identities are unknown to the tax authorities but who are suspected of violating tax laws. The summons is typically issued to a third party, such as a financial institution, bank, or credit card company, which is believed to have information about the unidentified individuals.
When the IRS or another tax authority issues a John Doe summons, it requests that the third party provide relevant documents and records that may identify the unknown individuals. This can include account statements, transaction records, and other documents that may shed light on the taxpayers' financial activities.
The IRS, or other government agencies, still however need to get permission from a court before using such a summons. So there appear to at least be some sort of checks and balances to the government's use of them.
Ultimately this comes down to the discussion about privacy, what rights do you as a private citizen have? The government's stance is pretty clear, they will more or less do anything they can to keep control and access to as much as possible. And tax evasion will most likely be the biggest tool the government will use to try and peel back the layers of privacy the crypto and blockchains offer. This fight will most likely not be pretty, I expect it to be similar to what we are seeing with the SEC right now.
Is this something that bothers you, or have you perhaps not even given this a thought before this? Please let me know what your thoughts are on crypto tax and if you have any experience with filing crypto tax. The comment section is all yours.
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Picture provided by: Fair use
