A federal court in the Northern District of California has officially authorized the Internal Revenue Services (IRS) to require the records of every user who conducted transactions in a convertible virtual currency between 2014 and 2015 from Coinbase. According to Forbes, the IRS has grounded its requirement on the fact of two cases of tax evasion involving Coinbase and the anonymous nature of bitcoin.
As a so-called “John Doe” summons, the document is very likely to become the largest single attempt to identify tax evaders using virtual currency to date.
“As the use of virtual currencies has grown exponentially, some have raised questions about tax compliance,” said Principal Deputy Assistant Attorney General Caroline D. Ciraolo, head of the Justice Department’s Tax Division. “Tools like the John Doe summons authorized today send the clear message to U.S. taxpayers that whatever form of currency they use – bitcoin or traditional dollars and cents – we will work to ensure that they are fully reporting their income and paying their fair share of taxes.”
Generally speaking, cryptocurrency is a digital representation of value that functions in the same manner as a country’s traditional currency. However, virtual transactions are hard to trace and control due to an inherently pseudo-anonymous aspect, which can enable taxpayers to withhold taxable income from the IRS.
“Transactions in virtual currency are taxable just like those in any other property,” said IRS Commissioner John Koskinen. “The John Doe summons is a step designed to help the IRS ensure people doing business in the emerging economy are following the tax laws and meeting their responsibilities.”
The requirement of the IRS doesn’t mean that Coinbase is suspected of any wrongdoing in connection with its virtual currency exchange business. The IRS underlines that it aims to get access to the information about possible violations of internal revenue laws by others, individuals whose identities are unknown. This John Doe summons orders Coinbase to unveil records identifying U.S. taxpayers who have used its services, along with other documents relating to their virtual currency transactions.
When the information about the request of the IRS first appeared, Coinbase said it has too wide-ranging nature.
“Although Coinbase’s general practice is to cooperate with properly targeted law enforcement inquiries, we are extremely concerned with the indiscriminate breadth of the government’s request. Our customers’ privacy rights are important to us and our legal team is in the process of examining the government’s petition. In its current form, we will oppose the government’s petition in court. We will continue to keep our customers informed on developments in this matter”, the company commented.