IRS wants to investigate US digital currency traders’ Coinbase transactions

Rage Commentary : The IRS filed a petition with the federal court, hoping that the court would investigate Coinbase’s customer data on bitcoin transactions from December 2013 to December 2015. This is because two of the three cases of virtual currency tax evasion in the United States were related to Coinbase. However, Coinbase believes that this is not the case, and that an investigation would violate customer privacy, and opposes the IRS’s petition. However, the truth can only be revealed after an investigation.

Translation: Nicole

It could take months for the IRS to obtain records from digital currency exchange Coinbase.

The IRS filed a request in federal court last week seeking approval to subpoena data on customers who traded bitcoin from Coinbase between December 2013 and December 2015.

Coinbase, based in San Francisco, California, is a company that facilitates trading in digital currencies such as Ethereum and Bitcoin.

According to the IRS’ previous experience, U.S. taxpayers have used virtual currencies to evade reporting and paying taxes. Senior Financial Settlement Agent Utzke found three cases of U.S. taxpayers using virtual currencies to hide income, two of which were related to Coinbase.

Shortly thereafter, the Ministry of Finance’s inspectors released a report punishing tax authorities for inaction on illegal activities and curbing “illegal activities using digital currencies.”

Coinbase says on its website:

As our customers may be aware, the U.S. government filed a civil lawsuit yesterday in federal court seeking to disclose three years of records of Coinbase’s U.S. customers. The government is not alleging that Coinbase did anything wrong, but rather that the lawsuit is based on numerous claims that taxpayers may have used virtual currencies to evade taxes.

Court filings indicate that any significant action is not expected until after mid-February. An initial case management conference was held in San Francisco on February 16, and the two sides can meet by January 26 to finalize an early resolution.

Coinbase said it has not yet set a date for when it will formally challenge the lawsuit in court. The startup said last week that it would challenge the lawsuit, saying in a statement at the time:

"Our customers' privacy is of paramount importance to us, and our legal team is reviewing the government's petition. In its current form, we will oppose the government's action in court. We will keep our customers informed of progress on this front."

The IRS requires Coinbase to submit the following records for users:

“Any U.S. address, U.S. phone number, U.S. email domain, or U.S. bank account.”

The requested records include, but are not limited to, user profiles, user preferences, user security settings and history, user payment methods, and other information related to the source of funds in the account/wallet/vault, however this is only for entry-level users of Coinbase. The IRS is also looking for all records of account/wallet/vault activity, including, but not limited to, records identifying the date, amount and type of transaction, the names or other identifiers of the parties to the transaction; requests or instructions to send or receive Bitcoin; and all communication records.

The controversial move by the Internal Revenue Service (IRS) comes just days after its inspector general published a report that criticized the agency’s digital currency strategy. In addition to creating a “comprehensive strategy” for the technology, the IG report also found that the IRS has the potential to find taxpayers for noncompliance.