IRS narrows scope of Coinbase subpoena: Impact for Coinbase users
This is a quick summary & analysis of the court notice issued July 6, 2017. The notice also references earlier documents which I could not access, so may need to update later.
The IRS is narrowing the scope of the information required in the subpoena issued to Coinbase.
This is does NOT change the requirement of taxpayers to report their Bitcoin / cryptocurrency income to the IRS. If you had Bitcoin / crypto income from Coinbase, or anywhere else, this must still be reported on your tax return.
TLDR: The IRS is still determined to force Coinbase to turn over a vast amount of information about certain Coinbase users, including Social Security numbers & all Coinbase wallet addresses for those users. Once this information is received, the IRS can review the blockchain for income events and cross check against tax returns filed.
If there is unreported Bitcoin / crypto income, the IRS can issue a letter demanding additional tax, penalties and interest, or audit the taxpayer.
Summary court notice of July 6, 2017
1. The IRS is seeking information from certain Coinbase users for 2013 to 2015 (“covered users”). These are users with at least the equivalent of $20,000 in any one transaction type in any one year. These are the types of transactions:
Buy
Sell
Send
Receive
2. The IRS is still demanding a significant amount of information from covered users:
Name
Physical Address
Tax Identification Number. For individuals, this would be the Social Security number or ITIN. For business entities, the Employer Identification Number (EIN).
Date of birth
Account opening records
Copies of passport or driver’s license
All wallet addresses, and all public keys for all accounts/wallets/vaults.
3. This does NOT include users which only bought & held bitcoin during 2013 to 2015, or for which Coinbase filed IRS Form 1099-K. The Form 1099-K is issued to certain taxpayers which received revenues from 3rd party payment services, such as Coinbase, Paypal or Amazon.
4. This does NOT include certain identified users who are known to the IRS. Coinbase will be provided with a list of those users
5. The IRS may still issue summonses to Coinbase users for information which the IRS is no longer seeking as part of the John Doe subpoena.
Analysis
To state the obvious, if the IRS receives your name and wallet addresses, they have now linked a personal identity to a Bitcoin address, and can follow the bitcoin wherever it goes.
The IRS could easily review the blockchain for income events, then cross check against a Social Security number to confirm Bitcoin income was reported.
If the IRS audits your bitcoin address and discovers unreported income, you will be informed only when you receive a nasty letter from the IRS demanding payment of the tax due on the Bitcoin income.
If you are a “covered user” with a Coinbase account during 2013–2015 and accurately reported your Bitcoin income, then you may not have a major issue.
However, if you did not report the income from your Coinbase transactions during that period, you may have a serious problem.
To avoid this situation, you may want to consider filing amended tax returns to report any Bitcoin income which was not previously reported; please contact your tax advisor to discuss your individual circumstances.
Disclaimer: I am not an attorney. I have a Master’s of Taxation and own an accounting firm specializing in Bitcoin and virtual currencies. http://globaltaxaccountants.com/form1.php I have written a course for CPAs about Bitcoin & Taxes and have an excellent understanding of how the IRS treats Bitcoin transactions. Nonetheless, this post is NOT legal advice, nor does it constitute advice regarding your personal tax situation. Under IRS Circular 230, I am not responsible for any positions you take on your tax return, unless I have prepared and signed that tax return. For detailed analysis of your tax situation, please consult your tax advisor.
