Bitcoin Exchange Ordered To Give IRS Years of Data On Millions of Users (gizmodo.com)

Last month, instead of asking for data relating to specific individuals suspected of a crime, the Internal Revenue Service (IRS) demanded America's largest Bitcoin service, Coinbase, to provide the identities of all of the firm's U.S. customers who made transactions over a three year period because there is a chance they are avoiding paying taxes on their bitcoin reserves. On Wednesday, a federal judge authorized a summons requiring Coinbase to provide the IRS with those records. Gizmodo reports: Covering the identities and transaction histories of millions of customers, the request is believed to be the largest single attempt to identify tax evaders using virtual currency to date. As a so-called "John Doe" summons, the document targets a particular group or class of taxpayers -- rather than individuals -- the agency has a "reasonable basis" to believe may have broken the law. According to The New York Times, the IRS argued that two cases of tax evasion involving Coinbase combined with Bitcoin's "relatively high level of anonymity" serve as that basis. "There is no allegation in this suit that Coinbase has engaged in any wrongdoing in connection with its virtual currency exchange business," said the Justice Department on Wednesday. "Rather, the IRS uses John Doe summonses to obtain information about possible violations of internal revenue laws by individuals whose identities are unknown." In a statement, Coinbase vowed to fight the summons, which the company's head counsel has previously characterized as a "every, very broad" fishing expedition.

Comments

Are we there yet?

[avandesande]

What is the difference between this and the IRS asking for banks to release 3 years of all of its customers records, because cash is anonymous?

Re:Are we there yet?

[Anonymous Coward]

Because Bitcoin is not a currency according to previous legal rulings and the IRS seems to be treating it however would advantage them in any given instance. I would assume that holding on to bitcoin then qualifies for capital gains if sold later at a profit.

Re:Are we there yet?

[deadwill69]

You seem to have most of it right:

https://www.irs.gov/uac/newsro...

In some environments, virtual currency operates like “real” currency -- i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance -- but it does not have legal tender status in any jurisdiction.

The notice provides that virtual currency is treated as property for U.S. federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency. Among other things, this means that:

        Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
        Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply. Normally, payers must issue Form 1099.
        The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
        A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

Re:Are we there yet?

[Anonymous Coward]

The IRS will always figure out how to get their money. Look at all the cannabis dispensaries in the states where it's "legal" (it's not really legal because the states really don't have the right or authority to make it legal since it's illegal at the Federal level). Few, if any, of those businesses have a bank account because at the Federal level cannabis is still a class 1 narcotic and banks will not touch these businesses. So they deal in cash most of the time, can't even process credit cards either due to not having a bank account.

Yet, the IRS (a Federal agency) has created rules for them to be able to report income and pay their taxes. So even though the banks won't touch them for fear of the Feds coming after them the IRS has no problem collecting money from something deemed "illegal" at the Federal level.

It won't matter if you decide to make dirt your currency and you have a group of friends who trade dirt for products or services. If the IRS catches wind and finds out, THEY will figure out what you owe them and you'll have to fight them on what they decide. Same goes for bartering schemes. You cannot trade a service or product and not pay taxes on what you receive. That is if you're following the rules/laws, which in those instances I doubt you'll find more than a few dozen Americans, who also all happen to be accountants, who report this sort of stuff on their personal taxes.

This is why....

[LaoTzePhuuk]

....cash should be used whenever possible.

Only a matter of time.

[jxander]

As soon as Bitcoin entered common parlance, this became the obvious endgame.

As soon as you could purchase normal day-to-day goods, it became inevitable.

And as much as it sucks ... they're right. Using crypto currency does avoid taxes, even if that isn't the primary intent.

I just wish they'd found a better way to address the issue. A mass subpoena is rather inelegant, and will cause a lot of pushback.

Re:Only a matter of time.

[geekmux]

As soon as Bitcoin entered common parlance, this became the obvious endgame.

As soon as you could purchase normal day-to-day goods, it became inevitable.

And as much as it sucks ... they're right. Using crypto currency does avoid taxes, even if that isn't the primary intent.

Replace bitcoin with gold in the above statement.

Humans have been using alternatives to taxable currency for a very long time in exchange for goods and services. Mining it out of the earth vs. mining it out of a machine; I fail to see a difference here, and tends to question the tax argument.

Meanwhile, in Ireland, trillions sit quietly...funny how that shit works, ain't it?

Non Issue

[Trachman]

If somebody had bitcoins, was smart to keep a blockchain in his own computer, and apply some common sense, this is not an issue.

If somebody opened account, provided name other information, then had to realize that their custodian is merely another type of bank, and all of the transactions will be subject to the scrutiny. Just like the regular old fashioned bank.

This is merely a way to scare bitcoin users.

Those who understand bitcoin have enough brain to maintain their anonymity.

Re:How does bitcoin know which customers are Ameri

[Anonymous Coward]

The premise of your question is flawed. BitCoin transactions are NOT anonymous, they are actually tracked *forever* in the block chains which are public records. What's supposed to protect you is that your wallet (a set of Crypto Keys actually) is used to identify parties in a transaction. Where it may not be easy to match the wallet to the person (or entity) making the transaction, but once you do, you can find EVERY transaction made by that wallet from public information.

Those trading BitCoin (which is something impossible to physically trade) must do so electronically, which means you have to use some kind of exchange at some point in order to obtain something of value for your BitCoin (i.e. trade it for something else). It's these conversion transactions where the anonymous nature of those Coins really isn't so safe and one's identity can be revealed. Once you are identified as the owner of a wallet, then everything you've done falls out of the public record in the block chains.

Re:TRUMP approves!

[NatasRevol]

Honestly, nobody knows what the fuck he would say.

Or whether or not he'd change his opinion the next day, depending on who he met with that night.

Re: It's Trumps Fault!

[NatasRevol]

I hate it when they use his own words against him.

It makes them look so bad.

Confused

[HuskyDog]

It is very likely that I don't understand enough about Bitcoin!

Question 1: Why would anyone who thought that they might not be paying all their US taxes use an exchange based in the USA? Is it something to do with needing to convert the Bitcoins to Dollars so that you can actually spend them?

Question 2: Given that one of the main selling points of Bitcoin is anonymity, why would someone operating an exchange keep any but the barest records? I appreciate that they can't destroy the information now they have been asked for it, but I am trying to grasp why they would put themselves at risk of being in that position by retaining it in the first place?

Re:IRS is illegal

[FatdogHaiku]

The Jefferson Clause of the United States Constitution...

Is that the one that talks about a guy and his wife that are movin' on up (movin' on up) to the East Side (movin' on up), To a deluxe apartment in the sky?

Blanket Warrant

[DERoss]

The basic issue is not about bitcoin. It is about the scope of warrants, summonses, and subpoenas. The Fourth Amendment to the U.S. Constitution states:
> The right of the people to be secure in their persons, houses,
> papers, and effects, against unreasonable searches and seizures,
> shall not be violated, and no Warrants shall issue, but upon probable
> cause, supported by Oath or affirmation, and particularly describing
> the place to be searched, and the persons or things to be seized.

I doubt there is "probable cause" that tax evasion has indeed been committed by Coinbase's users. Such a broad summons fails to describe which persons' accounts are to be examined. Since the summons was served on Coinbase, which has not been suspected of a crime, a challenge of the summons to appeals courts or the US Supreme Court might be very successful.