Back in 2005 when I was a trial attorney at the United States Department of Justice, I worked to enforce the John Doe summons on PayPal, Inc. in the federal district court in the Northern District of California, which summons sought to uncover the identities of several thousand PayPal users holding foreign accounts but having domestic spending and transfer activity. That was issued as a “John Doe” summons because although the activity in question was known, the particular identities of those users was unknown. That was just one more step in a long line of enforcement activity under the IRS’s Offshore Credit Card Program, which work extends back two decades.
Last week, Judge Otis D. Wright of the United States District Court for the Central District of California entered an order authorized the IRS to serve a John Doe summons on SFOX, a cryptocurrency prime dealer headquartered in Los Angeles, California. (There was no allegation that SFOX engaged in any wrongdoing itself.) The summons sought information about U.S. taxpayers who between the years 2016 and 2021 conducted at least $20,000 in dollar equivalent transactions by or through SFOX using cryptocurrency. SFOX’s website states that its services “accommodate retail brokerages, exchanges, enterprises, and fund managers in crypto. SFOX plugs into all major cryptocurrency exchanges and scans the entire crypto market for arbitrage opportunities, allowing traders to get the best marketwide price execution every time they trade. We offer multi-functional algorithmic trading through 9 different advanced algorithms, which can allow for smart routing. Traders can place large orders without moving the market, dispersing their funds across multiple exchanges at the lowest price available.” Such middlemen are not unusual summons targets for this type of enforcement.
The IRS has taken a longstanding position that virtual currency (a/k/a cryptocurrency) transactions which can be converted into…
