U.S. Justice Department authorizes IRS to obtain customer information from crypto firm Circle

The U.S. Department of Justice announced on Thursday that it has authorized the U.S. Internal Revenue Service to issue anonymous subpoenas (John Doe Summons) to Circle Internet Financial Inc. or its predecessors, subsidiaries, divisions and affiliates (including Poloniex LLC) to seek information on U.S. taxpayers who traded cryptocurrencies worth more than $20,000.

The IRS says people who transact in cryptocurrencies must meet their tax obligations like other taxpayers, and it requires documentation to ensure crypto users pay their taxes.

According to the statement, the IRS is seeking information about U.S. taxpayers who conducted cryptocurrency transactions equivalent to at least $20,000 between 2016 and 2020. The IRS is seeking records of customers who did business with or through Circle, a Boston-based digital currency exchange.

An anonymous subpoena does not name the person under investigation and authorizes the IRS to request information from taxpayers who have not yet been identified. It allows the IRS to obtain names and information about taxpayers who belong to a certain group, such as a list of investors who may have violated tax laws. A federal judge's signature is required.

In that case, U.S. Judge Richard G. Stearns agreed. He found “reasonable reason to believe that cryptocurrency users may not have complied with federal tax laws,” according to the Justice Department’s announcement.

To be clear, the IRS has not accused Circle of any wrongdoing. According to the IRS and the Department of Justice, this action is specifically aimed at identifying U.S. residents who fail to meet their crypto-related tax obligations.

“The anonymous subpoenas are intended to allow the IRS to uncover those individuals who fail to properly report their virtual currency transactions,” IRS Commissioner Chuck Rettig said in a statement.

The IRS took similar action against Coinbase in 2016, leading to a year-long court battle that culminated in the exchange turning over thousands of customer records.

Over the past year, the tax regulator has further demonstrated its commitment to combating tax evasion by asking taxpayers whether they have made any taxable crypto transactions. In 2020, it sent multiple letters to cryptocurrency holders reminding them to report taxable transactions.