IRS Demands All Info On All Coinbase Customers
from the slow-down,-skippy dept
There have always been questions about the tax implications of cryptocurrencies like Bitcoin. A few years ago, the IRS came out with some guidelines, declaring cryptocurrencies to be property, rather than currency, and then taxed more like equity. But late last week, the IRS went to court to basically demand Coinbase turn over all info it has on everyone. Coinbase is one of, if not the, leading online cryptocurrency exchanges and places where many people store their cryptocurrency in an online wallet. It's a company that has bent over backwards to comply with the laws. But, no matter, the IRS basically thinks everyone who uses it is a tax cheat. Here's what the IRS demanded:All records of account/wallet/vault activity including transaction logs or other records identifying the date, amount, and type of transaction (purchase/sale/exchange), the post transaction balance, the names or other identifiers of counterparties to the transaction; requests or instructions to send or receive bitcoin; and, where counterparties transact through their own Coinbase accounts/wallets/vaults, all available information identifying the users of such accounts and their contact information.Uh, yeah, that's not very limited. It's not limited at all. The IRS literally wants everything. Why? Because, according to the IRS, it's investigating one single tax cheat. In a declaration, IRS agent David Utzke, talks about a single tax cheat, and says this gives him a basis for requesting all info.
After using a traditional abusive offshore arrangement for approximately 5 years, Taxpayer 1 became fatigued with the effort required to manage his offshore accounts, attorneys, and applicable regulations, and discovered virtual currency while conducting internet research on the topic. Taxpayer 1 began testing the use of virtual currency and eventually abandoned the use of his offshore structure. Taxpayer 1 was able to use virtual currency to repatriate his assets without governmental detection.Utzke also mentions two other taxpayers, which were companies, not individuals, but which used Coinbase. He notes that others are laundering money and thus likely to be using cryptocurrencies. That may be true, but it seems like a pretty big stretch to argue that means Coinbase should cough up all details on all transactions.
For example, Taxpayer 1 originally worked with a foreign promoter who set up a controlled foreign shell company which diverted his income to a foreign brokerage account, then to a foreign bank account, and lastly back to Taxpayer 1 through the use of an automated teller machine (ATM). Once Taxpayer 1 abandoned the use of his offshore structure in favor of using virtual currency, the steps described above were the same until his income reached his foreign bank account. Once there, instead of repatriating his income from an ATM in the form of cash, Taxpayer 1 diverted his income to a bank which works with a virtual currency exchanger to convert his income to virtual currency. Once converted to virtual currency, Taxpayer 1’s income was placed into a virtual currency account until Taxpayer 1 used it to purchase goods and services. Taxpayer 1 failed to report this income to the IRS.
In the IRS's memorandum of support, it insists that it's just trying to find all the tax cheats, so it should get to look at all the records.
Since 2009, the use of virtual currency has increased exponentially. Some users value the relatively high degree of anonymity associated with virtual currency transactions because only a transaction in virtual currency, such as buying goods or services, is public and not the identities of the parties to the transaction. Because of that, virtual currency transactions are subject to fewer third-party reporting requirements than transactions in conventional forms of payment. However, due to this anonymity and lack of third-party reporting, the IRS is concerned that U.S. taxpayers are underreporting taxable income from transactions in virtual currencies. Further, because the IRS considers virtual currencies to be property, United States taxpayers can realize a taxable gain from buying, selling, or trading in virtual currencies. There is a likelihood that United States taxpayers are failing to properly determine and report any taxable gain from such transactions.Coinbase posted a short blog post Friday evening expressing concern over this while exploring the issues:
.... The issuance of the summons is warranted here because (i) the summons relates to an ascertainable group or class of persons; (ii) there is a reasonable basis for believing these U.S. taxpayers failed to comply with internal revenue laws; and (iii) information sufficient to establish these U.S. taxpayers’ identities is not readily available to the IRS from other sources.
Our customers may be aware that the U.S. government filed a civil petition yesterday in federal court seeking disclosure of all Coinbase U.S. customers' records over a three year period. The government has not alleged any wrongdoing on the part of Coinbase and its petition is predicated on sweeping statements that taxpayers may use virtual currency to evade taxes.What happens here is going to be a big, big deal in the cryptocurrency world. The IRS had to know that this was going to get attention, and perhaps that's the intent. But this seems like a massive overreach.
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.
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Filed Under: bitcoin, cryptocurrency, irs, tax cheats, taxes
Companies: coinbase
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Deja vu
"A suspected criminal might have used the service for illegal actions, therefore we should be able to search every account to fish for illegal actions."
Where have I heard that logic before...
"Criminals drive cars, therefore we should be able to search every car..."
"Criminals use encryption, therefore encryption in general should be crippled so we can bypass it..."
Let's cut to the chase and boil it down to the bare essence of the argument:
"Criminals use X, therefore X and anyone who uses it is a potential criminal and should be treated as such."
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Re: Deja vu
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Re: Re: Deja vu
The state doesn't like citizens to have secrecy in communications or financial transactions.
Remove the last five words and I'd say it would be more accurate.
The state doesn't like citizens to have secrecy
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Re: Re: Re: Deja vu
In general yes, but specifically only when it threatens the existence of said state.
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Re: Re: Re: Re: Deja vu
Like a self fulfilling prophecy, all attempts to stifle dissent usually result in making it grow.
And like the IRS in this case, they are ensuring that they will become an even more hated organization increasing the desire of candidates to run on a platform of IRS abolition.
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Re: Re: Re: Re: Deja vu
When you hold to the idea that everyone is at the very least a potential criminal and/or threat to the state, as more than a few in various governments seem to believe, then any secrecy on the part of the non-government is a problem, because anyone might at some point 'threaten the existence of said state', and clearly not having every needle for the haystack is a disaster in waiting, as that one missing piece would have been the important one.
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Re: Re: Re: Re: Deja vu
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Re: Re: Re: Deja vu
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Re: Re: Deja vu
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Re: Deja vu
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Re: Re: Deja vu
Up to a point.
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Badly placed efforts, if you ask me.
Or by lobbying to switch the US system of taxation to Land Value Taxation.
https://en.wikipedia.org/wiki/Land_value_tax
You get to invoke Adam Smith, David Ricardo, and Henry George (double-bonus here: he was an American!).
It has the potential to reduce the cost of living for everyone by two means: i) taxes can actually get collected (or else the owner of the land has to forfeit it, returning it to the Commons); 2) house prices are likely to come down to non-speculation prices.
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Re: Badly placed efforts, if you ask me.
That involves meddling in the sovereignty of other countries.
That has the problem that a land owner needs some form of cash income. Here in the UK, death duties on the value of property has destroyed many estates, and forced the transfer of the remnants into the hands of the national trust.
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Re: Re: Badly placed efforts, if you ask me.
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Re: Re: Badly placed efforts, if you ask me.
Not necessarily. Nevada is a popular tax haven right now, as are a few other US states.
Besides that, the IRS lets companies get out of US taxes by claiming income and taxes in other countries. The USA could tax US companies based on worldwide income, as they do for individuals (with limited success admittedly, but these laws can be changed without meddling in other countries).
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Re: Re: Re: Badly placed efforts, if you ask me.
Wouldn't that just incentivize companies to headquarter elsewhere?
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Re: Re: Badly placed efforts, if you ask me.
Have you not heard of FATCA?
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Re: Badly placed efforts, if you ask me.
There is only 1 test for ownership.
Does it remain in your possession if you stop spending any money associated with it.
It funny that those pesky and stupid Americans think they own land or property. In truth, you rent it from the Government. They own your property, go ahead stop paying taxes and find out who owns what?
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Re: Re: Badly placed efforts, if you ask me.
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Re: Re: Re: Badly placed efforts, if you ask me.
The AC above you is referring (badly) to property taxes on real estate. Which is the only type of property that his statement actually does apply to. Even then, we the people agree to property tax assessments. At least where I live, I've never seen a property tax applied without the consent of a majority of the voters.
For everything else, your statement certainly applies.
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Re: Re: Badly placed efforts, if you ask me.
That land cannot be furtively moved to a lower-tax district by weaselly accounting practices. I'm sure you can find all sorts of instances where companies claim that all of their profits are generated by a post-office box address in Andorra or Bermuda, and so can't be taxed where you live.
In many, many cases, the increase of the value of land is largely due to improvements which have been paid for by other citizens' taxes (roads, sewage, public transit, etc), or are the property of Commons (resources, oil,ore, etc).
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The holy grail of Law-enforcement! When you need a 'potential' perp in shackles or just plain dead... just accuse them of being in the process of committing a heinous crime.
It's not like the law would ever abuse it authority and lie to anyone.
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Re:
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meddling in the sovereignty of other countries
did that become a problem? when did that happen?
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Re:
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Deny the request
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Re: Deny the request
Which is perfectly in standing with FATCA.
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Re: Re: Deny the request
I was of the understanding that FACTA applied only to U.S. persons.
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Re: Re: Re: Deny the request
Not quite. While I was referring U.S. Persons overseas, many of whom are permanent residents or citizens of the country that they reside in, FATCA also breaches the privacy of any joint account holders which may have no other connection to the U.S., and any companies that they may have signatory authority for any accounts for.
And that assumes that non-U.S. Persons have not been incorrectly identified, possibly for not providing evidence to prove that they are not. The potential penalties for foreign financial institutions provide a rather perverse incentive to identify as a U.S. Person anyone that has raised even a slight suspicion of being one.
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I think my lawerly friends have a word for this
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I appreciate your clarification of the libertarianesque "property tax is rent" proposition.
Now, a question:
How many corporate property tax abatements have you seen made subject to such consent?
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Re:
The comment above was meant as a reply to this comment, from RH:
https://www.techdirt.com/articles/20161118/18090136088/irs-demands-all-info-all-coinbase-customer s.shtml#c323
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FTFY
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Re: FTFY
Got a citation for that?
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Viewing The Data
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The IRS knows how many people declared coinbase income on 2015 call that number X.
Coinbase has a number of crypto wallets that had activity on 2015. Call that number Y.
Coinbase has processed a number of transactions for customers. Call that number Z.
Given that the IRS is show9ng s9me cases of tax avoidance and given that crypto currency is a good eay yo move money....
Take Y - X . If that number is still very large, say multiples of X, there is great potential for people not reporting.
You can take Z / Y and figure out the number of transactions per account average, and then figure out an average transaction size to know what was unreported on average.
At that point, the state can show a valid interest in knowing who has not reported Coinbase transactions.
Privacy does not generally extend to illegal acts.
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Re:
Except that it still can't say which it might have some interest in or jurisdiction over. It's still nothing more than a fishing expedition in extra-territorial waters.
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