Last week, the price of bitcoin crossed the $10,000 threshold after soaring for months. In the same week, Coinbase (a company that facilitates use of the cryptocurrency and others) faced a setback in an IRS investigation and will have to turn over records.
A U.S. Magistrate Judge in San Francisco ruled in favor of the IRS, finding its request for user information was not overly intrusive. After fighting with the agency for about a year, the company claimed a partial victory after narrowing the scope of what it must disclose.
What prompted the request?
The IRS treats virtual currency as property. Back in 2014, the IRS published a FAQ sheet for taxpayers on reporting obligations, but there has still been confusion.
And as bitcoin has increased in popularity, the number of taxpayers reporting gains from virtual currency transactions has remained low. For instance, Coinbase claims some 6 million customers. Between 2013 and 2015, however, fewer than 1,000 taxpayers reported bitcoin-related gains on their tax returns.
This discrepancy was the basis for the agency’s suspicion. Initially, the John Doe summons for information was quite broad in scope as we discussed back in an April blog post. It even included public keys for wallets and vaults.
How much information will the company have to turn over?
The narrower request will still affect almost 9 million transactions and 14,355 account holders. Basic identifying information will need to be turned over on any account that had the equivalent of a $20,000 or more transaction (bought, sold, sent or received) between 2013 and 2015.
On these accounts, the IRS is asking for records of all account activity in addition to the following identification data:
- User’s name and address
- Birth date
- Taxpayer ID
This information provides a comprehensive record of everything a user has done with a Coinbase account.
When will Coinbase turn over this information?
As of last week, the company was reviewing the order to determine next steps. It has said it will notify affected users before turning over the requested information to the IRS.