Department of Justice, Tax Division has recently filed a petition for leave for serving a ‘John Doe’ summons on Payward Ventures (Kraken). The plea requests account information for all US taxpayers whose account value is $20,000 or more in cryptocurrency for any financial year in last five years.
The petition has been filed in the United States District Court for the Northern District of California and it explains the need of a ‘John Doe’ summon as they don’t know who are the eligible account holders. However, Kraken has the information of the account holders and it there are reasons to believe that compliance with one or more provisions of internal revenue laws may be or may
have been bypassed by such account holders.
A ‘John Doe’ summons is a tool to collect information about a person or an entity. It does not identify the person with respect to whose liability the summons is issued. Section 7609(f) of Internal Revenue Code lays down the procedure for the IRS to request
information about a whole group or class of individuals with certain similar attributes but with unknown specific identity as long as there are reasons to believe the group or class might have not complied with any provisions of the code.
It was famously and successfully used around a decade ago to identify U.S. citizens with undeclared Swiss bank accounts following which the IRS recovered $11.1 billion in back taxes, penalties and interests. The IRS has been trying to reach the Coinbase account holders ever since their names were disclosed a few years ago.
Attorney John Colvin clarifies, “In the government’s first request for a John Doe summons on a cryptocurrency exchange (Coinbase), the Northern District held that the summons requested by the government was overboard, and indicated that significant portions of what the government requested were not relevant to the identification of the non-complaint taxpayers, but would only become relevant once the potential non-compliance was established. Subsequently, as part of the Taxpayer First Act, in 2019, Congress codified the approach taken by the Northern District, amending the John Doe Summons statute to require that any summons be ‘narrowly tailored’ to identify non-compliance”.