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Coinbase to 13,000 Customers: Company Giving Records to IRS, Affected Users Should Hire a Tax Attorney

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    As regular readers may already know, our Bitcoin tax attorneys have been chronicling the ongoing legal battle between Coinbase, one of the world’s most prominent and widely-used cryptocurrency exchanges, and the Internal Revenue Service (IRS). In this long-running dispute’s latest development, Coinbase – which seems to be losing ground to the IRS, despite the company’s efforts to stem the investigative tide – has formally notified approximately 13,000 customers of its intent to turn over user data in compliance with court orders issued last year. This development is tangible proof that the IRS is successfully pushing forward with its sustained, aggressive campaign to increase the regulation of Bitcoin and other cryptocurrencies. For thousands of Bitcoin users, with more likely to join their ranks over the next several years, that could translate to very bad news.

    Timeline of the IRS-Coinbase Dispute and Resulting Summons

    For those who may be out of the loop regarding the Coinbase-IRS controversy, allow our tax attorneys to bring you up to speed with a quick timeline:

    1. In September 2016, the U.S. Treasury Inspector General for Tax Administration (TIGTA) recommended that the IRS step up its cryptocurrency tax enforcement efforts, noting, “None of the IRS operating divisions have developed any type of compliance initiatives or guidelines for conducting examinations or investigations specific to tax noncompliance related to virtual currencies,” some popular (and Coinbase-supported) examples of which include Bitcoin, Ethereum, and Litecoin.
    2. In November 2016, the Department of Justice (DOJ) made the following announcement: “A federal court in the Northern District of California entered an order today authorizing the Internal Revenue Service (IRS) to serve a John Doe summons on Coinbase Inc., seeking information about U.S. taxpayers who conducted transactions in a convertible virtual currency during the years 2013 to 2015.”
    3. In December 2016, the IRS issued a “John Doe” summons, viewable here, which is used to procure the information of persons with unknown identities, demanding that Coinbase turn over roughly half a million records. This action spurred legal resistance from Coinbase on the grounds of, in the company’s own words, “unwarranted intrusions from the government.”
    4. In July 2017, after hearing arguments from Coinbase, the court agreed to shrink the original summons, reducing the number of users affected from approximately 480,000 to 14,355. (You can view the “narrowed” summons here.)

    Coinbase Announces 13,000 Records Will Be Turned Over to IRS

    Despite some lulls in the timeline, time no longer appears to be on Coinbase’s side, nor that of its noncompliant users. On February 23, 2018, Coinbase posted a brief yet ominous announcement to its Support page, titled simply “IRS Notification,” stating the following:

    “On February 23rd, 2018, Coinbase notified a group of approximately 13,000 customers concerning a summons from the IRS regarding their Coinbase accounts.

    Please refer to this document for the court’s judgment. The court ordered Coinbase to provide taxpayer ID, name, birth date, address, and historical transaction records for certain higher-transacting customers during the 2013-2015 period.”

    Despite being only about 300 words long, the aforementioned notification packs in a few major announcements – with significant legal implications for impacted users. Highlights of the notification, which can (and should) be read in full by following the “IRS Notification” link above, include the following:

    • Coinbase plans to turn over the requested information “within 21 days.” Since the announcement was issued February 23, the information should have been provided to the IRS late in March 2018.
    • Tax returns for the years 2013, 2014, and 2015 may be examined.
    • Coinbase (which notes that it is “unable to provide legal or tax advice”) urges affected users to “consult with your tax advisor” as soon as possible. Legal counsel is imperative, as noncompliant Bitcoin users may be subject to considerable civil penalties or, in cases of willful tax evasion, criminal tax consequences – including prison time.

    For those who wish to explore this story in greater detail, our Orange County tax evasion lawyers would direct readers toward the following articles covering the Coinbase controversy, listed in chronological order below:

    The following articles, which discuss various tax requirements pertaining to digital currencies, may also be of interest to our readers:

    Bitcoin Tax Lawyers Providing Audit Representation and Criminal Tax Defense for Cryptocurrency Users

    With thousands of records to analyze, it is going to take time – precisely how much remains uncertain – for the IRS to sift through this massive influx of Coinbase user data. However, that is not an excuse for Coinbase users to delay seeking legal counsel, a measure which Coinbase itself prudently recommends.

    On the contrary, Coinbase customers should use this time to immediately obtain the services of a skilled and experienced tax attorney who is well-versed in, and up-to-date on, the complicated and continuously shifting regulations that surround virtual currency held domestically or abroad. To arrange a reduced-rate tax consultation concerning Bitcoin (BTC), Bitcoin Cash (BCH), Litecoin (LTC), or Ethereum (ETH) that you stored, sold, bought, or mined using Coinbase, or elsewhere, during 2013, 2014, or 2015, contact the Tax Law Office of David W. Klasing online using our submission form, or call (800) 681-1295 right away.

    Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices in San BernardinoSanta BarbaraPanorama City, and Oxnard! You can find information on all of our offices here.

    Here is a link to our YouTube channel: click here!

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