IRS taking steps to force Coinbase to provide user records for 2013–2015

Daniel Winters
4 min readNov 18, 2016

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The Internal Revenue Service is taking steps to force Coinbase, Inc. to provide records to the IRS for the transactions of Coinbase users during 2013 to 2015.

TLDR: The IRS has an excellent understanding of the Bitcoin ecosystem. The IRS has investigated several taxpayers regarding their Bitcoin transactions. Those taxpayers had accounts with Coinbase. The IRS is now going on a fishing expedition to find other U.S. persons with accounts at Coinbase, Inc. who may have avoided paying taxes on income from Bitcoin.

This post is a summary of California Northern District Court v. UNITED STATES OF AMERICA, Case №3:16-cv-06658-JSC. Please see below for disclaimer.

Below I’ve written a quick summary of a document filed on November 17, 2016 in the United States District Court for the Northern District of California. You can find that document here:

https://t.co/9VERyUCpJa

The document is a declaration in support of serving a “John Doe” summons to Coinbase, Inc. The summons would require Coinbase, Inc. to provide information concerning the transactions of Coinbase users for 2013, 2014 and 2015. Further comments below:

1. The IRS has begun an investigation of United States persons who conducted transactions in a convertible virtual currency during 2013 to 2015. Bitcoin is a convertible virtual currency. The purpose of the investigation is to determine the correct taxes due for those U.S. persons.

2. There are IRS employees with excellent, detailed knowledge of the entire Bitcoin ecosystem. This includes mining Bitcoins, trading Bitcoins on a virtual currency exchange, receiving Bitcoin as payment for goods/services, and every type of transaction in between.

3. The IRS is well aware of the potential to use Bitcoin to avoid paying taxes.

4. Bitcoin transactions are not reported directly to the IRS. Therefore, the IRS is seeking legal permission to force Coinbase to provide transaction records for its users.

5. The IRS doesn’t know the identity of people who may have avoided paying taxes on Bitcoin transactions. The John Doe summons would create a class of people, then Coinbase would need to provide information on that entire class.

6. The IRS agent who wrote the declaration is extremely experienced regarding off-shore arrangements to avoid paying taxes. The Offshore Compliance Initiative is an IRS program whose purpose is finding taxpayers who hid money offshore and avoided paying their taxes. The agent is now assigned to find taxpayers that used Bitcoin to avoid paying taxes. His responsibilities are not limited to investigating only offshore structures.

7. The IRS agent was involved in the examination of an individual taxpayer concerning offshore arrangements to avoid taxes. The taxpayer admitted using Bitcoin to avoid paying taxes.

8. The IRS agent was also involved in the examination of 2 corporate taxpayers, who had annual revenues of several million dollars. The taxpayers bought and sold Bitcoin, and under-reported their income. The IRS exam did not go well for the taxpayers. The IRS denied deductions, which means income was increased. It was not stated in the declaration, but in this situation the IRS will force the taxpayer to pay additional taxes on the income which was not reported.

9. The 2 corporate taxpayers had accounts at Coinbase, Inc.

10. The IRS is now going on a fishing expedition to find other U.S. persons with accounts at Coinbase, Inc. who may have avoided paying taxes on income from Bitcoin.

I have a Coinbase account. What does this mean for me?

If the summons is served and Coinbase is forced to comply, then Coinbase will provide data on user transactions for 2013 to 2015.

If you had a Coinbase account during 2013, 2014 and 2015 and accurately reported your Bitcoin income, you have nothing to worry about.

If you did not report the income from your Coinbase transactions during that period, well, you may have a serious problem.

If the summons is served, the IRS may use the information from Coinbase to open an investigation into your Bitcoin transactions. 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 have no responsibility 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.

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Daniel Winters

Bitcoin & cryptocurrency tax accountant with strong international experience. Email us at info@globaltaxaccountants.com to set up a consultation.