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The IRS Is Mining for Crypto Account Holders – JD Supra

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Bracewell LLP
For years, the cryptocurrency wallets of U.S. taxpayers have existed in a reporting gray zone. However, as it becomes clear that crypto asset transactions are not slowing down, the Internal Revenue Service (IRS) has signaled its expanded focus on regulation and enforcement efforts in the cryptocurrency industry, specifically utilizing “John Doe” summons. The “John Doe” summons, a tool used to target unknown taxpayers, is a mechanism through which the IRS, with court approval, can compel information from a third party—such as a crypto exchange—concerning a taxpayer not identified by name in the summons. The IRS’s use of “John Doe” summons, which it is increasingly using to compel the production of information from popular cryptocurrency exchanges, continues to demonstrate the growing strength of the IRS’ arsenal of enforcement tools as it relates to cryptocurrency. As the cryptocurrency market continues to grow, so too will enforcement agencies’ desire to make sure it is not being used for nefarious purposes.
What’s Happened So Far
It is no secret that the cryptocurrency industry is in the IRS’s crosshairs. An IRS attorney stated just last week that the IRS plans to increase its use of “John Doe” summons with regard to cryptocurrency. Further, in March 2021, the IRS announced the launch of Operation Hidden Treasure, a new enforcement initiative for tax violations related to cryptocurrency. This year, federal courts authorized the IRS to issue two “John Doe” summons to popular cryptocurrency exchanges, Circle Internet Financial (Circle) and Payward Ventures (aka Kraken). These inquiries centered on platform users with at least $20,000 in crypto transactions. The IRS sought data ranging for the five-year period from 2016 through 2020. The documents the IRS sought from the exchanges included account registration records, Know-Your-Customer (KYC) due diligence, account related correspondence, anti-money laundering (AML) exception reports, records of account activity, and records of account funding.
The Circle and Kraken “John Doe” summonses are by no means the end of the line for IRS cryptocurrency enforcement. As these two inquiries show, the IRS is seeking extensive information related to those engaged in cryptocurrency transactions, and cryptocurrency exchanges will face onerous requirements to produce such information going forward. This increased information gathering by the IRS as part of its cryptocurrency enforcement efforts will likely lead to a greater scrutiny of cryptocurrency exchanges and others who provide or receive services for cryptocurrency.
The Compliance Viewpoint
Cryptocurrency industry participants should anticipate that the IRS might begin to scrutinize customers and business processes, and specifically focus on  AML and KYC compliance measures. Before the IRS comes knocking with a “John Doe” summons, a prepared organization would be proactive and start taking measures to protect itself, its business, and  its customers. Working to ensure that proper protocols are in place to safeguard against customers looking to exploit gaps in KYC measures will be helpful in keeping the scrutiny of the IRS’s enforcement efforts on customers and not exchange platforms.
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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Cryto Mining

US banking regulators are looking to clarify crypto rules in 2022 – The Verge

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One of them is already working to make banks’ responsibilities clearer
The Federal Reserve, Federal Deposit Insurance Corporation (or FDIC), and Office of the Comptroller of the Currency (OCC) have issued a joint statement announcing a plan to clarify the rules and regulations around how banks can use cryptocurrencies over the next year (via Bloomberg).
The agencies say they’re focusing on setting expectations for what banks can do when it comes to holding crypto, allowing customers to obtain crypto, issuing their own stablecoins (or cryptocurrencies whose value is tied to a fiat currency like the US dollar), and taking crypto as collateral for loans and keeping it on their balance sheets. According to the letter, the goal is to make sure consumers are protected and that banks act responsibly. The regulators also say it’s an attempt to make sure the financial industry isn’t used to launder ill-gotten currency, something the Treasury Department has been focusing on recently.
The OCC has already made moves in this direction — on Tuesday, the acting comptroller released a letter clarifying decisions that the office had made throughout 2020 and early 2021. Now, the letter says, banks will have to ask permission from regional regulators before getting into certain crypto fields.
Previously, the Comptroller said banks were allowed to hold cryptocurrencies for customers as well as assets being used to back stablecoins. Banks were also told they could use stablecoins and act as nodes on blockchain networks. While financial institutions will still be able to carry out these activities, they’ll have to be able to prove to regulators that they can do so safely and responsibly.
These announcements come as some crypto companies have skirmished with regulators over what legal classifications their products fall under. Recently, Coinbase canceled its Lend program after a public feud with the Securities and Exchange Commission over whether what it was selling counted as securities (and would therefore fall under heavier legal scrutiny). The Treasury has also proposed that large cryptocurrency transfers be reported to the Internal Revenue Service, and has asked Congress to start regulating stablecoins.
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Altcoin Roundup: 3 signs that show crypto mass adoption is underway – Cointelegraph

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Bitcoin AUM falls 9.5% to record largest monthly pullback since July – Cointelegraph

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