IRS Gets Approval to Receive Financial Records of Circle’s US Customers

The court has authorized the US Internal Revenue Service of Joe Doe summons to Circle and its predecessors and affiliates, including Poloniex, for those engaged in crypto transactions worth at least $20,000 between 2016 and 2020.

US District Judge Richard Stearns of Boston has issued an ex parte order allowing the US Internal Revenue Service (IRS) to serve a John Doe summons on Circle, including its affiliates, division, and subsidiaries cryptocurrency exchange Poloniex.

Poloniex was sold by Circle in 2019 to Tron founder Justin Sun after less than two years of acquiring it for $400 million.

The IRS believes thousands of taxpayers are not telling the government about their income from crypto transactions. As such, the agency filed a petition for an order approving the service of an IRS John Doe summons on Circle.

Now, the court has ordered and adjudged the IRS to serve a summons upon the Boston-based digital currency platform Circle Internet Financial for the financial records of its US customers who had an account at the platform or any of its predecessors and engaged in cryptocurrency transactions worth at least $20,000 between 2016 and 2020.

The financial records include account registration records, Know-Your-Customer due diligence, money laundering reports, account funding, and activity records.

The IRS told the judge that it has good reason to believe Circle customers are not reporting their tax liability from crypto income.

At this time, it hasn’t been mentioned just how many Circle customers might be subject to the John Doe summons. As per the accompanying memo, Circle is regulated as a “money services business” (MSB) with the Financial Crimes Enforcement Network (FinCEN).

As an MSB, Circle is required to maintain certain records, including transactions worth more than $3,000, the name and address of both the sender and recipient, the amount of the transaction, the date of the transaction, and other identifying information.

The memo further mentions that as of July 2019, Circle had served over 8 million customers with over $200 billion in trading volume of more than 60 types of digital assets.

The IRS had also won a similar 2017 decision on Coinbase, under which the agency sent a notification letter to over 10,000 taxpayers and asked them to file amended returns and pay back taxes.

The IRS said Coinbase notifications resulted in about $25 million in revised assessment.

Coinbase had put up a fight against the John Doe summons, but it only resulted in the IRS narrowing the scope of its demand slightly as the court sided with the government. In the Justice Department announcement of Stearns' order, IRS Commissioner Chuck Rettig said this summons is

“a step to enable the IRS to uncover those who are failing to report their virtual currency transactions properly.”

The DoJ said the US petition does not allege that Circle is engaged in any wrongdoing.

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