U.S. Bitcoin Exchange Coinbase Ordered to Give Customer Data to IRS

coinbase

A U.S. District Court judge has ordered bitcoin exchange Coinbase to provide the Internal Revenue Service (IRS) with the transaction records of more than 14,000 customer accounts.

The ruling (PDF), which was filed in the Northern District of California’s San Francisco courthouse, compels Coinbase to provide the IRS with customer records for accounts that had at least the equivalent of $20,000 in any one transaction type (buy, sell, send, or receive) in any single year from 2013 to 2015. Coinbase estimates that 14,355 accounts will fall subject to the purview of the summons.

Since the IRS classifies cryptocurrency as property, all cryptocurrency holdings are subject to capital gains taxes at the time of disposition. However, the IRS claims that virtually no U.S. taxpayers have reported bitcoin-related investment income on their annual tax returns. Armed with this data, the agency will be able to identify and levy penalties against investors who have skirted their legal obligations to pay taxes on their bitcoin investments, and — in some cases — prosecute offenders for tax evasion.

“That only 800 to 900 taxpayers reported gains related to bitcoin in each of the relevant years and that more than 14,000 Coinbase users have either bought, sold, sent or received at least $20,000 worth of bitcoin in a given year suggests that many Coinbase users may not be reporting their bitcoin gains,” U.S. Magistrate Judge Jacqueline Scott Corley wrote in her ruling. “The IRS has a legitimate interest in investigating these taxpayers.”

The ruling did not come as a surprise. Earlier this month, the judge told Coinbase in a hearing that she was inclined to “give tremendous discretion to the agency as to how they investigate” whether people are making money on their bitcoin investments. Following that hearing, Coinbase published a blog post that more or less conceded defeat but took solace in the fact that the company had successfully forced the IRS to narrow its initial summons, which sought records from approximately 500,000 customers.

Despite the narrow focus of the final order, the successful defense of the summons will likely encourage the IRS to ramp up its efforts to bring bitcoin users into compliance with tax reporting obligations — particularly following the industry’s dramatic growth in 2017.

Featured Image from NPR/Dennis Brack/LandovIRS-v-Coinbase-order

The ZCash Foundation is the first public charity dedicated to privacy infrastructure

The ZCash Foundation has been granted 501(c)3 status as a public charity by the United States government. The ZCash Foundation went through a long and arduous application process with the IRS to make sure that they received tax exempt status for public infrastructure – not public education (which is much much more common and usually referred to as the easy route). Furthermore – they are the first to do so in the name of privacy. Peter Van Valkenburgh explained the significance of the new tax designation on the ZCash Foundation blog:

You may not be particularly interested in non-profit tax law, but if you are passionate about the Internet, privacy, and the future of public infrastructure, then this is important news. So far as I know, the Zcash Foundation is now the first public charity dedicated to building internet payments and privacy infrastructure for the public good.

ZCash Foundation will still promote cryptocurrency education

Valkenburgh clarified that the ZCash Foundation’s previous work will continue, just be expanded to cover more:

The foundation will—still—engage in public education about cryptocurrencies, online privacy technology, and the computing networks that power these new tools. But the foundation will also support open, peer-reviewed scientific research into zero-knowledge proofs and associated cryptographic technologies, and, perhaps most importantly, it will help to build the Zcash decentralized network as open, public infrastructure.

ZCash was able to successfully justify the importance of privacy in public spaces – including those that are online – to the IRS. This is a big win for cryptocurrencies, privacy, and free and open source software in the United States and abroad.