Coinbase Bitcoin Users Who Evade Taxes Are Sought by the I.R.S.

[2dogs]

The Internal Revenue Service is on the hunt for people who used Bitcoin to evade taxes.

The tax agency sent a broad request on Thursday to Coinbase, the largest Bitcoin exchange in the United States, asking for the records of all customers who bought virtual currency from the company from 2013 to 2015.

The document, a so-called John Doe summons, said that an I.R.S. agent recently found three cases in which people were using Bitcoin to evade taxes — two of which involved Coinbase customers.

The I.R.S. said that those findings — and Bitcoin’s relatively high level of anonymity — have led the agency to think that many more people are using the virtual currency for similar purposes.

“The I.R.S. not only has suspicion that the John Doe class includes U.S. taxpayers who are not complying with the law — it knows that the class in the past included such violators, and very likely includes others,” the document says.

The summons comes shortly after the Treasury Department’s inspector general issued a report chastising the tax agency for not taking more aggressive action to curb “unlawful activities by those who use virtual currencies.”

“None of the I.R.S. operating divisions have developed any type of compliance initiatives or guidelines for conducting examinations or investigations specific to tax noncompliance related to virtual currencies,” the report, delivered in September, said.

The request this week would require Coinbase, a start-up based in San Francisco with funding from several leading venture capital firms, to turn over the identity and full transaction history of millions of customers — it had about three million customers at the end of 2015. But the company is already gearing up to fight the request.

“We want to work with law enforcement — that’s generally our policy,” the company’s head legal counsel, Juan Suarez, said Friday. “But we can’t tolerate sweeping fishing expeditions. We are very concerned about the financial privacy rights of our customers.”

The existence of the summons was reported earlier on Twitter by the financial blog Zero Hedge.

The request from the I.R.S. appears to be the most sweeping single effort to track down people using virtual currency to break the law.

In the past, Coinbase has received narrowly tailored requests for information about customers, and generally complied, Mr. Suarez said, but never something as broad as the latest summons.

Coinbase and other companies that buy and sell Bitcoins are required by regulators to record the identities of people who buy and sell virtual currency on their platforms.

The underlying Bitcoin wallets, however, are tracked by a decentralized network of computers that generally do not record the identities of the people involved in transactions. A Bitcoin wallet looks like a series of random letters and numbers, and anyone can open one without providing their identity. The most famous early use of Bitcoin came on the Silk Road, an online site where users could pay for drugs with Bitcoin, with the understanding that their identity would never be recorded.

The documents filed this week indicated that the tax agency was interested in going after both large tax evaders as well as small-time Bitcoin users who might not be recording their virtual currency transactions properly for tax purposes.

The basic tax rules for Bitcoin users were set down by the I.R.S. in 2014. The agency’s guidance said that people should treat their virtual currency as property, rather than currency, for tax purposes. If a person buys a Bitcoin for $200, for example, then sells it later when its value has risen to $400, the $200 in gains are supposed to be recorded to the tax authorities.

Omri Marian, a professor of tax law at the University of California, Irvine, said that most Bitcoin users were probably not aware that they were supposed to record their losses and gains as taxable events every time they bought anything with their Bitcoins.

“It may be the case that many people were not aware that what they were doing is taxable,” Mr. Marian said on Friday. “Are those the people the I.R.S. is looking for?”

An I.R.S. agent, David Utzke, said in a document filed on Thursday, along with the summons, that he was already pursuing larger offenders. Mr. Utzke said he identified two companies that were buying Bitcoin and misreporting them with the I.R.S. as technology expenses. Mr. Utzke said both of the companies were customers of Coinbase. The companies themselves were not named in the document.

Coinbase provides its customers with information about the gains or losses they make on every virtual currency transaction. The tax agency, however, said it was not getting the information it needed to determine whether Coinbase users were making the proper tax payments.

“The risk/reward ratio for a taxpayer in the virtual currency environment is extremely low, and the likelihood of underreporting is significant,” Mr. Utzke wrote. “The characteristics of virtual currencies could enable them to replace traditional abusive tax arrangements as the preferred method for tax evaders.”



http://www.nytimes.com/2016/11/19/business/dealbook/irs-is-seeking-tax-evaders-who-use-bitcoin.html?_r=1

No surprises here.  We all knew Coinbase was in bed with the legacy institutions. 

[2dogs]

Here is an opinion of a tax accountant and his article includes a link to the actual filing of the case:

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.

https://medium.com/@GlobalTaxAccountants/irs-taking-steps-to-force-coinbase-to-provide-user-records-for-2013-2015-5df40d8c90dc#.337bw1gat

[ajaxmoor]

Since people using Coinbase would be buying bitcoins using their bank accounts, so how exactly would people be evading taxes here ? Wouldn't all that money earned that they didn't pay taxes on would have hit their bank accounts first ?

[Keyser Soze]

Since people using Coinbase would be buying bitcoins using their bank accounts, so how exactly would people be evading taxes here ? Wouldn't all that money earned that they didn't pay taxes on would have hit their bank accounts first ?

If you both bought and sold bitcoins through Coinbase and had realized gains (sold bitcoins for more than they cost), then the IRS would be able to identify that fairly easily. If taxes were not paid on those gains, they would would be able to go after you for the taxes due on those gains.

[ekstremista]

Since people using Coinbase would be buying bitcoins using their bank accounts, so how exactly would people be evading taxes here ? Wouldn't all that money earned that they didn't pay taxes on would have hit their bank accounts first ?

There's no need to buy. You can receive bitcoins via Coinbase. Selling them would then be a taxable event, assuming you're not just sending bitcoins to yourself (but you might have a hard time explaining that to the IRS).

[ajaxmoor]

Since people using Coinbase would be buying bitcoins using their bank accounts, so how exactly would people be evading taxes here ? Wouldn't all that money earned that they didn't pay taxes on would have hit their bank accounts first ?

If you both bought and sold bitcoins through Coinbase and had realized gains (sold bitcoins for more than they cost), then the IRS would be able to identify that fairly easily. If taxes were not paid on those gains, they would would be able to go after you for the taxes due on those gains.

Oh, so do you mean people who trade and then finally retain their earnings in bitcoin ?

There's no need to buy. You can receive bitcoins via Coinbase. Selling them would then be a taxable event, assuming you're not just sending bitcoins to yourself (but you might have a hard time explaining that to the IRS).

Yes, that part I understand, but when you sell it the money will enter your bank account and you will anyways have some explaining to do then.

[ekstremista]

Yes, that part I understand, but when you sell it the money will enter your bank account and you will anyways have some explaining to do then.

Only if you sell and are audited.

[BellaBitBit]

Only if you sell and only if you had gains.  If you bought high and sold low then that would be a loss instead which is not taxable.

[Eternalwanderer]

They want the information on everyone and anybody who ever transacted or purchased with bitcoin including your account information.

If you bought bitcoin, held it, sold it, sent it to a different wallet, what your email, phone, etc. all of that they want it.

Coinbase is fighting it but we know how this story ends.

The law will side with the IRS.

In the end, no one should be surprised. A U.S based company that asks for identifying documents -- we all knew that the moment any exchange asked for ID documents there was a possibility they would be reported to the IRS. That's why some people choose localbitcoins or avoid exchanges that require ID altogether.

We also knew that any company based in the U.S. is subject to the jurisdiction of the united states which isn't necessarily known for it's freedom. Very focused on surveillance,  etc.

note even as they outlaw oppressive laws in one hand; they pass new ones with 'subtle' names with the other. Ex. the new law that allows the Feds to remote control any one's computer device if they are using any kind of vpn or proxy.

I would be surprised if there is anyone actually surprised that this is happening. I personally had thought this had happened sooner.

I think it's definitely time to look at decentralized exchanges that don't request identity if there are people who haven't already.

[iCEBREAKER]

the united states ... isn't necessarily known for it's freedom.

Taxes, among other intolerable acts, are the reason there is a United States, rather than just a bunch of English colonies.

The proper response to taxation without representation is tar and feathers.

'member this?



We fought a revolutionary war over issues like general warrants and writs of assistance, which is what the IRS is issuing to Coinbase for its due process violating fishing expedition.

We killed or otherwise defeated our oppressors until they left us alone to be "a shining city on a hill."

Back then we had muskets and cannons.

Today we have sniper rifles, pistols, plastique, drones, chemical weapons, and undetectable poisons.  All available over the internet.

Back then, the tyrants' property and families were safe back in merry old England....

[iglasses]

(Wednesday 11/30)
...In a two-page court order, US Magistrate Judge Jacqueline Scott Corley agreed that the IRS can serve the San Francisco-based company with a form that would require disclosure of essentially all personal data of all Coinbase users who conducted a transaction between 2013 and 2015. ...

I'm not sure why Coinbase thought they would be able to fight this.  This agency has a well documented history of essentially doing anything they want without recourse.  Check your records folks...you might be getting a letter from our friends.

[iCEBREAKER]

This agency has a well documented history of essentially doing anything they want without recourse.  

So did King George.  Until the Yankees became sufficiently infuriated by his ruinous taxation, writs of assistance, and general warrants.

So did Hillary.  Until the FBI let it be known she would have been frogmarched if her husband wasn't a former President, and Trump ended her career.

[iglasses]

I'm sure that makes Coinbase and all of it's users feel much better.

Thank you for sharing.

[iCEBREAKER]

I'm sure that makes Coinbase and all of it's users feel much better.

Thank you for sharing.

[kolloh]

Only if you sell and only if you had gains.  If you bought high and sold low then that would be a loss instead which is not taxable.

Is there also a certain value that the gains must be above in order to require reporting taxes on them? If you had a gain of $5 are you still required to report it?

I'm assuming the IRS would likely only be hunting the big fish rather than smaller users. I was also curious if you bought 2 bitcoin for $1000 total and sold 1.5 bitcoin for $1000 . If you never sell the extra 0.5 that you have left, do you have to report taxes/ownership of it or does the buy/sell cancel each other out and limit your taxability?

[Coin-Keeper]

I saw this coming some time ago.  I decided to use localbitcoins (or private escrow members) and cash, which is legal, just to avoid "name capturing" by the Gov.  These big exchanges are totally legal, as I am, but I don't like names being sifted into a capture net.  LBC has my internet monikers only, and anyone can have them (its not Coin-Keeper obviously).  Also, my observation is that Coinbase is way too slow for me.  Not a reputation thing against them.  I just prefer to deal with instant or close to it.

[botany]

Only if you sell and only if you had gains.  If you bought high and sold low then that would be a loss instead which is not taxable.

Is there also a certain value that the gains must be above in order to require reporting taxes on them? If you had a gain of $5 are you still required to report it?

I'm assuming the IRS would likely only be hunting the big fish rather than smaller users. I was also curious if you bought 2 bitcoin for $1000 total and sold 1.5 bitcoin for $1000 . If you never sell the extra 0.5 that you have left, do you have to report taxes/ownership of it or does the buy/sell cancel each other out and limit your taxability?

The buy/sell does not cancel your liability. You bought 1.5 bitcoins for $750 and sold them for $1000. So you will have to pay tax on the profit of $250.
The other 0.5 bitcoin that you have bought for $250, you will need to pay taxes only when you sell it (for a profit).

[olubams]

This is getting serious as the regulations are coming gradually and this is what I have always say in my posts relating to legality of Bitcoin. I see US enacting a law very soon regulating this crypto-world in another dimension and other countries following suit. This among other reasons why exchange sites will even ask for blood group in other to trade. This is a drawback, in as much as we are celebrating the popularity of Bitcoin, we should also not be unmindful of the fact that as more people are coming in, more revenue loss to government and government will not sleep on that...

[QuintLeo]

http://www.foxnews.com/politics/2016/12/15/bitcoin-user-battles-irs-in-court-over-access-to-private-data.html

 Pretty bad news for the IRS when the legal heavyweights start weighing in AGAINST their abuse of process.

 Sad part is that the original judge didn't bother looking at the request and realise it was a blatant violation of 4'th Amendment rights and of due process.

[Zadicar]

This is getting serious as the regulations are coming gradually and this is what I have always say in my posts relating to legality of Bitcoin. I see US enacting a law very soon regulating this crypto-world in another dimension and other countries following suit. This among other reasons why exchange sites will even ask for blood group in other to trade. This is a drawback, in as much as we are celebrating the popularity of Bitcoin, we should also not be unmindful of the fact that as more people are coming in, more revenue loss to government and government will not sleep on that...

That why some government that is aware on bitcoin existence im sure that they are already preparing up if the situation or adoption of bitcoin will arise on their nation.Yes, government will not surely sleep on that and they will find ways to impose taxes no matter what. Lossing revenue because of bitcoin is really a serious matter and i could say that if bitcoin adoption cant be stopped then this problem will surely arise.