IRS Fires Back In Coinbase Case as It Seeks Access to Bitcoin User Data

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by Tatsiana Yablonskaya · 3 min read
IRS Fires Back In Coinbase Case as It Seeks Access to Bitcoin User Data

The IRS responds to the motion of Coinbase’s user asking the court to allow the tax agency proceeding with its “John Doe” summons.

As a reminder, earlier this month Los Angeles attorney Jeffrey K. Berns, the Managing Partner of Berns Weiss LLP, filed a case protesting against the court decision that allowed the Internal Revenue Services (IRS) to require the records of every user who conducted transactions in bitcoin between 2014 and 2015 from Coinbase.

Berns argued against the decision as the initiative could open private customer data to hackers.  As a strong argument, he recalled the previous hacker attack on the IRS when 700,000 Social Security numbers were stolen.

Now, the IRS gives its response asking the court to dismiss the motion and allow the tax agency to proceed with its “John Doe” summons.

The IRS states that Berns, as a Coinbase user, is not subject to the summons. In other words, the aim of the IRS is to get access to the information “revealing the identity of certain unknown taxpayers”.

The IRS withdrew the summons concerning Berns (while only him). Coinbase is notified that the agency will not seek any records related to Berns. These measures mean that the matter as it affects Berns has been resolved making his motion moot. Now, the IRS is planning to continue issuing the “John Doe” summons on Coinbase customers.

The whole matter began in November when Coinbase announced that the U.S. government filed a civil petition in federal court intending to disclose all Coinbase U.S. customers’ records over a three year period. The petition was based on general statements that taxpayers might have used bitcoin to evade taxes. The IRS also backed its requirement by the fact of two cases of tax evasion involving Coinbase and the anonymous nature of bitcoin. The wrongdoing on the part of Coinbase wasn’t detected.

As a result, the federal court in the Northern District of California officially authorized the IRS to require the records of every user who conducted transactions in a convertible virtual currency between 2014 and 2015 from Coinbase. The document called “John Doe” summons seemed to become the largest single attempt to identify tax evaders using virtual currency to date.

The initiative was approved by Judge Jacqueline Scott Corley who found that “based upon a review of the Petition and supporting documents, the Court has determined that the “John Doe” summons to Coinbase, Inc. relates to the investigation of an ascertainable group or class of persons, that there is a reasonable basis for believing that such group or class of persons has failed or may have failed to comply with any provision of any internal revenue laws, and that the information sought to be obtained from the examination of the records or testimony (and the identities of the persons with respect to whose liability the summons is issued) are not readily available from other sources.”

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