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IRS Targets Bitcoin Transactions in Federal Case Here in California

There is an interesting case which has been filed in a California Federal Court.  Concerns are mounting as the IRS targets bitcoin transactions through Coinbase, a bitcoin exchange, through the strategy of a “John Doe Summons.”  The IRS has used this strategy in the past in an attempt to force banks and financial institutions to turn over information so that the IRS could identify every one of their account holders.  This is the same request the IRS is making of Coinbase.  While this does not provide specific account and transactional information at this point, it does identify individual taxpayers who are using “cryptocurrency” to conduct transactions without oversight of a third party including visibility for the IRS.  The request in this case is much broader in scope.

The IRS is looking for “tax cheats” pure and simple.  However, the massive sweep will draw in taxpayers who may or may not be shielding income or transactions from tax liaibilities.  The request asks Coinbase to turn over the names of any user who made digital currency transactions between 2013 and 2015.  The IRS agent who submitted the filing argued that all bitcoin users are by nature suspect, because cryptocurrency transactions do not require reporting to state or federal government agencies.  “Tax noncompliance increases in the absence of third-party information reporting,” said Utzke in his filing. “This experience is a reasonable basis to believe that members of the ‘John Doe’ class [the Coinbase users] may have failed to comply with the internal revenue laws of the United States.”

 

Coinbase intends to appeal the summons if it is approved by the lower Court.  “Our general tack is to work with law enforcement’s reasonably targeted and lawful requests for information,” said Juan Suarez, the counsel at Coinbase. “This is a very, very broad request for all information on customers over a three-year period.”

Questions are increasingly concerning as the IRS targets bitcoin transactions through their John Doe summons strategy.  The IRS seems to be interested in sizing up the value of the transactional marketplace, as well as the compliance of bitcoin users with federal tax laws.  The IRS is attempting to step up enforcement of tax evasion strategies against bitcoin much as it has used FBAR reporting and FATCA to pursue offshore income and assets.

 

The San Diego based tax attorneys at Allen Barron are experienced in all forms of transactions including international business transactions and cryptocurrency liaibilities.  We invite you to contact us for a free consultation at 866-631-3470.