IRS Requests Data on Coinbase Users
In an ongoing IRS’s effort to fight tax evasion the Internal Revenue Service working with a federal court has forced Coinbase, a major bitcoin wallet service company to hand over personal information of their users. They’ve targeted those who have made transactions between the year 2013 to 2015. Another way of putting it is the IRS believes that buying Bitcoin has the potential to be probable cause in making an individual the subject of a tax evasion investigation. They want the information on users on one exchange they can get to, in this case CoinBase.
Forbes report that the Department of Justice (DOJ) filed paperwork in federal court (California Northern District Court, Case No. 3:16-cv-06658-JSC) requesting the identities of United States Coinbase customers who transferred convertible virtual currency at any time between December 31, 2013, and December 31, 2015.
Investigations into Misuse of Specific Users
The request is due in part after the IRS findings of instances of tax evasion involving Coinbase customers. This is reason enough for the tax bureau to warrant an investigation. Incidents include IRS Agent David Utzke’s account of two individuals with revenues in the millions annually purportedly using the exchange to disguise the amount they spent purchasing the bitcoins as deductions for technology expenses on their tax returns.
John Doe Summons
The subjects of the data request are identified in court documents simply as an indeterminate number of “John Does.” A “John Doe” summons is an investigative tool available only to the IRS and only after having been approved by a federal court. It is used when the name of the taxpayer under investigation is unknown.
We see from this action how U.S. government agencies are becoming more and more interested in the digital currency, as well as regulating transactions associated with it. We can also gather that utilizes exchanges, especially ones based in the United States are subject to the reach of the government. At this time the IRS considers bitcoins to be property and not currency.
Will Governments Continue to Seek Bitcoin Users?
These events are just the beginning of what seems to be a way to talley Exchanges make this information readily accessible and it’s easy to assume that the Federal government could have access to your information if you have used an exchange. Although the total amount taxed is unknown, this could trigger a sell/buy demand if the IRS continues to track down cryptocurrency buyers. We believe that Bitcoin isn’t anonymous, but it is close to it. Someone with the right technical knowledge could completely mask any transaction and make it difficult to ascertain his/her balance. Then again, how far will governments go to make cryptocurrency users known?