The US Internal Revenue Service (IRS) demands one of the biggest cryptocurrency exchanges Coinbase to hand over personal information and history of transactions of 13,000 users. On Friday, February 23, those lucky ones received first official notices.
What would be your reaction if you were one of them?
Bet you won’t be happy.
So are they. But as Coinbase is one of the leading cryptocurrency exchanges, and billions of dollars are circulating on it, the IRS isn’t sure that all of them are properly taxed. So the company was asked (requested, actually) to provide the IRS with literally all information about users they have: name, birth date, address, taxpayer ID and history of transactions through 2013–2015. So the US government will get both the users’ identity and record of all money shifts in accounts. As information about accounts to which users sent money or from which they received them must be provided as well, links to other accounts and users also become obvious.
In the list of 13,000 people were included even famous in cryptocurrency world entrepreneurs. This is, for example, tweet of Andreas Antonopoulos:
Coinbase regards handing over information of 13,000 users as a victory because initially it was asked to provide information about all users (and it is about 500,000 people) to check them for tax evasion. During the legal proceeding, that lasts for more than a year (IRS’s initial request for users’ information was in November 2016), the number was reduced to 13,000 “high-transacting” users (those who moved more than $20,000 through their accounts in a single year).
The company was brave enough to battle with the IRS and diminish the number of users whose information will be turned over. According to Coinbase director of business operations David Farmer, the government’s own lawyers noted at the hearing that the IRS is not accustomed to fighting for records in this context, and most companies just turn records over without going to court. The number of users whose personal information will be transferred to the IRS is 97% lower than the initial number that was required.
Cryptoholders vs. Taxes
Money made through Bitcoin trading is taxable as income, but most people are struggling not to pay a cent from their cryptocurrency funds. And, as only 0.04% of crypto users pay taxes (according to finance service Credit Karma), they are struggling really hard. Reluctance to pay taxes from crypto income is not surprising — Bitcoin, that was proclaimed anonymous and uncontrolled by any government, now is treated as an asset and taxes must be paid. Many people have come into crypto with one sole purpose — to avoid taxes, and now that advantage was taken away from them.
Community opinion has divided. Some say that it’s just an attempt to control cryptocurrency, the charm of which is that it is uncontrolled. Part of crypto users agrees that taxes from crypto income must be paid just like from any other type of income. And almost everybody understands that if there is a financial institution through which enormous sums of money may be laundered, it must be checked by authorities. Nobody wants Silk Road 2.0.
Many users also mention that if the government wants to get some percent from gains made by Bitcoin price rise, it would be great if that same government would cover losses when the rate crashes. At least it would be fair.
Coinbase says it will send data in the next 21 days and advises users, who have concerns about crypto taxes, to get a consultation from an attorney. In our turn, we advise to follow the example of Andreas Antonopolous and pay all necessary taxes for crypto income to avoid trouble.
