‘Expect more’ John Doe records requests from crypto exchanges

An Internal Revenue Service (IR) official said Wednesday to “expect more” in the way of broad information requests to crypto exchanges, similar to past efforts involving Coinbase, Kraken and Circle. 

The comments were made by Carolyn Schenck, national fraud counsel and assistant division counsel at the IRS. They came during a panel event hosted by Tax Issues on March 2 that was focused on cryptocurrency regulation.

During her initial remarks, Schenk offered a broad overview of the IRS landscape as it relates to cryptocurrency, noting that “[w]e have cases in every stage of the pipeline, from letter treatment to examination to appeals to criminal refers to active criminal prosecution.”

Schenck touched on a few publicly known areas of IRS action, including the issuance of letters to taxpayers suspected of not correctly reporting their crypto-related tax obligations. Such letters were issued in 2019 and 2020, respectively, and Schenck noted that the IRS “may continue to use those in the future.”

Perhaps most notably, Schenck remarked that the IRS may utilize so-called John Doe letters in order to seek information from crypto exchanges. Such requests have been made to Coinbase as well as Kraken and Circle; in such cases, the exchanges themselves aren’t accused of wrongdoing, but rather the IRS is looking for potential tax cheats.

“Expect more from the IRS with respect to John Doe summonses in this area,” said Schenck.

Schenck also indicated that crypto tax compliance is being centered within the IRS’s processes:

“The question of whether a taxpayer engages in digital asset transactions is being built into every examination and every collection matter.”

Last year, the IRS sought additional funding to build out its crypto-related capabilities, including for internal training and hiring purposes. Pandemic-related staff shortages have resulted in an enormous backlog of tax returns,  potentially impacting those who have submitted returns involving crypto data, as The Block reported.