Coinbase tells users IRS data handover imminent

(a.k.a. why you should get ahead of the curve)

The Update

As many of you know, the Cryptocurrency market is like the wild, wild, west right now. People are making mountains of money over night and riding off into the sunset without concern for their tax liability.

Did I️ already lose you by using the phrase “tax” liability? Well, if you have invested in Cryptocurrency I️ highly encourage you to read on and bear with me through some tax talk, I promise I’ll keep it simple.

Alright, well, as of February 23rd, 2018 Coinbase has informed approximately 13,000 of it’s users that their data will be handed over to the IRS imminently. This news comes after a ruling in late November where the U.S. District Court of Northern California ordered Coinbase to comply with the IRS’s petition to release users’ data. For more information on Coinbase’s official statement to users from Friday February 23rd, 2018 please see here.

Ok, so what information is the IRS requesting and why?

First of all, it’s important to understand who’s information is being requested. According to the Court ruling, the IRS will be receiving only information for those accounts which had “$20,000 in any one transaction type (buy, sell, send, or receive) in any one year during the 2013 to 2015 period”. For the crypto tax nerds like me out there, you can find that complete ruling here.

Secondly, the information being requested is limited to the following: the users’ taxpayer ID, name, birth date, address, and historical transaction records from Coinbase.

Ok, so some of you may be breathing a sigh of relief now knowing that this doesn’t affect you, and some of you may be picking up the red phone on your mahogany desks and calling your emergency legal and tax council. Regardless of which one you are, this is an important moment for Cryptocurrency and taxation in the United States.

Put simply, the amount of people reporting crypto gains properly during the timeframe requested by the IRS (2013–2015) is staggeringly few.

According to the Court’s official ruling, IRS research found that, “only 800 to 900 persons electronically filed a Form 8949 that included a property description that is “likely related to bitcoin” in each of the years 2013 through 2015". ONLY 800 to 900 PEOPLE!

To put that in perspective, today Coinbase operates in 33 countries and has over 5.9 million users. So, what’s 900/5.9 million? Well, granted not all users have to pay U.S. Capital Gains Tax, but hey I’m trying to prove a point. Anyway, the answer is 0.00015254%!!!!!

Clearly, this is an issue and that is why the IRS is petitioning exchanges like Coinbase to release their user’s information. They are requesting the information to see just how deep this problem goes and to determine how much back-tax as a whole is potentially owed.

Like any other organization, the IRS has to pick it’s battles and if this new round of research fueled by Coinbase user data produces a large estimate in back-taxes owed from crypto traders then you better believe they will prioritize this issue and do everything in their power to try to collect those back-taxes and then some!

Ok, so does this mean all 13,000 users are going to have to pay back taxes and possibly receive fines and penalties?

As of now, the answer to this question is unclear. As stated above, the IRS is requesting the information from Coinbase only to conduct it’s own research and determine the estimated level of “wrong doing” by crypto traders. At this time they have not said whether or not they will use the information to attempt to collect back-taxes from specific users. The question of whether or not they will is more complicated.

Summing it all up…

Basically, what you need to know is that the IRS is gathering information on crypto trading. They have now won a ruling against Coinbase to receive specific user data to conduct further research and they will be receiving that information very soon. Ultimately, the IRS will decide what to do with that information once they have finished conducting their research. When all of this research and decision making will be completed by the IRS is still unclear at this time.

I know you’re thinking it, “How can I be prepared?”

Great question, the best way to prepare yourself from any potential IRS rulings demanding the payment of back-taxes for crypto trading and the potential for those demands to come with fines and penalties is to start filing your 8949 Capital Gains Tax form correctly.

I know, I used “Tax Form” but it’s not as bad as it sounds thanks to TokenTax! If you are a Coinbase or GDAX user just sign up and import your transaction history automatically, TokenTax will do the rest! Use any other exchanges? Simply download a transaction history report from the exchange of your choosing and upload it to TokenTax, we’ll still do the rest!

Get your complete .pdf 8949 fast and easy today with TokenTax, and don’t worry about what’s going to happen when the IRS decides what to do. You’ll already know you won’t have to worry about back-taxes, fines, or penalties because you were proactive and reported accurately.

Check TokenTax out!

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