Largest US Bitcoin Exchange Ordered To Disclose Three Years Of User Data To IRS

Tyler Durden's picture

Last week we reported, that in an unprecedented attempt to breach the personal privacy of users of the largest bitcoin exchange in the US, Coinbase, the IRS filed papers seeking a judicial order to serve a so-called “John Doe” summons on the San Francisco-based Bitcoin platform.

The government’s request was part of a bitcoin tax-evasion probe, and seeks to identify all Coinbase users in the U.S. who “conducted transactions in a convertible virtual currency” from 2013 to 2015. What makes a “John Doe” unique, is that it represents a special "shotgun" form of summons to look for tax evaders that allows the IRS to obtain information about all taxpayers in a group or class of people, even if the agency doesn’t know their identities. The IRS has deployed the tactic in its recent crackdown on undeclared offshore accounts, with the implication that any such broad sweep may lead to prosecution.

Coinbase executives were "extremely concerned" and vowed to oppose the government's petition in court.

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.

 

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.

Coinbase head legal counsel, Juan Suarez, said that "we want to work with law enforcement — that's generally our policy," . "But we can't tolerate sweeping fishing expeditions. We are very concerned about the financial privacy rights of our customers."

We concluded our report by wishing "Good luck to Coinbase fighting the IRS: if America's tax collector is intent on getting the identities of the biggest traders are in America's largest bitcoin exchange, it will certainly succeed (especially if they happen to be conservatives)."

Alas, our best wishes were not enough, and yesterday a federal court in the Northern District of California ordered Coinbase to disclose what the IRS has demanded: all American user transactions from 2013 to 2015.

From the authorization:

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.  The IRS is seeking the records of Americans who engaged in business with or through Coinbase, a virtual currency exchanger headquartered in San Francisco, California.

 

“As the use of virtual currencies has grown exponentially, some have raised questions about tax compliance,” said Principal Deputy Assistant Attorney General Caroline D. Ciraolo, head of the Justice Department’s Tax Division.  “Tools like the John Doe summons authorized today send the clear message to U.S. taxpayers that whatever form of currency they use – bitcoin or traditional dollars and cents – we will work to ensure that they are fully reporting their income and paying their fair share of taxes.”

 

Virtual currency, as generally defined, is a digital representation of value that functions in the same manner as a country’s traditional currency.  There are nearly a thousand virtual currencies, but the most widely known and largest is bitcoin.  Because transactions in virtual currencies can be difficult to trace and have an inherently pseudo-anonymous aspect, taxpayers may be using them to hide taxable income from the IRS.  In the court’s order, U.S. Magistrate Judge Jacqueline Scott Corley found that there is a reasonable basis for believing that virtual currency users may have failed to comply with federal tax laws.

One paragraph that will likely get particular scrutiny now that virtually any Bitcoin transaction in the US is open to IRS scrutiny is the following:

The IRS has issued guidance regarding the tax consequences on the use of virtual currencies in IRS Notice 2014-21, which provides that virtual currencies that can be converted into traditional currency are property for tax purposes, and a taxpayer can have a gain or loss on the sale or exchange of a virtual currency, depending on the taxpayer’s cost to purchase the virtual currency (that is, the taxpayer’s tax basis).

The order concludes by saying that the court’s order "grants the IRS permission to serve what is known as a “John Doe” summons on Coinbase.  There is no allegation in this suit that Coinbase has engaged in any wrongdoing in connection with its virtual currency exchange business.  Rather, the IRS uses John Doe summonses to obtain information about possible violations of internal revenue laws by individuals whose identities are unknown.  This John Doe summons directs Coinbase to produce records identifying U.S. taxpayers who have used its services, along with other documents relating to their virtual currency transactions."

Despite the order, Coinbase has vowed to continue the fight: "We look forward to opposing the DOJ's request in court after Coinbase is served with a subpoena," a spokesman for the San Francisco-based company said in an email to Reuters.

Coinbase remains concerned with its U.S. customers' privacy rights in the face of the government's request, he added, although he is likely far less concerned than any people who used Coinbase from 2013 to 2015, and who may soon be getting a visit from the taxman, even if they have done nothing illegal. As for the myth that trading bitcoin by ordinary Americans provides some additional layer of privacy, that is about to be thoroughly debunked.

The executed DOJ order is below (link).

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booboo's picture

submit bit coiners *PUFF*

 

Tallest Skil's picture

But but but but but "muh blockchain"!

TeamDepends's picture

I accidentally shredded, or was it deleted, yes deleted my blockchain. Then the dog ate what was left. Swear to Dog.

nope-1004's picture

Satoshis unite.  All of teh idiot fonestars be wid u..... muh bitches.

Bigcoin unbreakable.  Except once it's broken.

Now seriously, y'all didn't think that a competitor to the USD would be allowed to take hold, did ya?  I mean Saddam, Quaddafi, Mubarek... isn't there enough proof out there that if you fuck with good old uncle sams fake bucks, you get it?

You want Bigcoin to rule?  End the Fed.  Till then, stop whining.

Holy hand grenade of Antioch's picture
Holy hand grenade of Antioch (not verified) nope-1004 Dec 1, 2016 9:17 PM

Back in April 2012, francis_sawyer was really giving fonestar the business in these threads (because fonestar was 'braggin' about his bitcoin profits & f_s was basically warning him, 'yeah, & I'm sure you'll be reporting those capital gains taxes to the IRS')... Whereby, fonestar, just said 'pffffft'

 

Anyway, about a month later, f_s was kicked off of ZH (for some OTHER reason than that one there)...

 

& so it goes.

City_Of_Champyinz's picture

I have been waiting to read a story like this for some time.  Can't wait for the 'currency' that 100% relies on the internet and cell phone networks cheerleaders to tell us this is no big deal & that our shiny pet rocks are bullshit.

PT's picture

Oh, this one's easy to escape:

"But we accidentally deleted everything so now we are innocent.  Ref:  Lerner, Clinton.
And now you have to doubly not investigate us becoz we are running for President.
Actually, no, scrub that last one.  We just donated to the Foundation.  There.  Now we are eternally innocent and the main stream media loves us."

sleigher's picture

All I know is that someone took 1's and 0's and converted them to physical gold and silver.  I say good on them for doing the right thing.  1's, 0's, and gold are all outside the purview of asshole fuck motherfucking cunts who have their hands in our pockets.

The Saint's picture
The Saint (not verified) sleigher Dec 1, 2016 11:26 PM

Whew!  Sure glad I decided to report my Coinbase bitcoin arb profits on my taxes last year.  I'll bet most probably didn't.  I guess being a responsible citizen has its rewards in peace of mind.

 

mmanvil74's picture

All these Gold hoarders crack me up.  

First, this news about Coinbase is no big deal, if anything it confirms Bitcoin as a legitimate asset.  Sure, it's not ideal, but for Bitcoin to become widely recognized as legal tender, it will have to have its reckoning with the IRS.  The sooner, the better.  

Second, in the eyes of the IRS Bitcoin is being treated the same as gold for tax purposes.  

Third, Gold has yet to outperform Bitcoin in ANY year since Bitcoin was invented, except maybe 2014, which was the year of Mt. Gox and Silk Road. Other than that year, Bitcoin is CRUSHING gold in terms of capital gains...

Fourth, that shiny yellow metal is damn hard to spend, damn hard to secure, damn hard to use.  

Fifth, ask yourself, will your kids and grandkids be more likely to be using Gold or digital currency 10 years from now?

TVP's picture

Good points.  As with gold, you don't get taxed unless you sell it for fiat.  IRS will have no reason to go after most users, and no legal basis for doing so.    

Funny how every single time a piece of negative press about cryptocurrency comes out, BTC trolls say "Look, I told you so!  The end is nigh! Game over."  Happened with mt.gox, silk road, bitfinex, and now this.  People don't seem to understand the difference between isolated instances involving bitcoin businesses and the actual blockchain and currency itself.     

Jubal Early's picture

With this suit the IRS has grabbed all US based bitcion users by the gonads.  If you cannot spend your bitcoins into the economy then they are not much worth.  The IRS wants to know the identity of all US customers.  All exchanges and stores dealing in bitcoin will be forced to provide information on all US person bitcoin owners.  Its FATCA for you, bitcoin users.  Learn to love your slavery.

SilverRhino's picture

This is a 21st century Writ of Assistance.  

Fuck the IRS. 

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) SilverRhino Dec 2, 2016 1:23 AM

WANT TO SET TEH RECORD STRAIGHT?

Everything we (fonestar) said in 2011 is still on program. If you are dumb enough to keep your Bitcoin somewhere like Coinbase or MtGox you deserve to get frauded out or have your a$$ taxed off.

Bitcoiners who paid CA$H in a back alley for their Bitcoin are totally unaffected by this and are laughing their a$$e$ off!

https://localbitcoins.com

LA_Goldbug's picture

Not many live in the World of the Emporium.

Jubal Early's picture

Its about the interface to the real economy, not wallets or encryption.  Just look at what india has done to its poor slaves, er citizens.  I'll bet all those indian farmers without bank accounts sure wish they had a bitcoin wallet now...

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) sleigher Dec 2, 2016 1:29 AM

I still have my price prediction for $1 million dollar BTC.

I suspect a loaf of bread will also be $1 million a few weeks after that...

The Navigator's picture

I was a buyer of $5/oz silver and at $45/oz. Bought some gold at $1350/oz/

Still, none of it has gone to $0.0

And none of it is on anyones records - all paid for with cashola.

Most of it at the bottom of my local lake, even though I proclaim to be a master seaman but cannot cross a little lake without capsizng a dinghy.

Learn to use camo, including your agedness. Carry a cane and learn how to use it. Move right on thru the TSA insprection points with your gray hair and limp.

Fizzy Head's picture

I uh, had a boating accident and uh, the blockchains ya know, they uh went to the bottom. And I bumped my head and forgot which lake...

RedDwarf's picture

"I have been waiting to read a story like this for some time.  Can't wait for the 'currency' that 100% relies on the internet and cell phone networks cheerleaders to tell us this is no big deal & that our shiny pet rocks are bullshit."

Sigh.  It's a 3rd party exchange.  On US soil.  Of course this would eventually happen.  This has NOTHING to do with the blockchain itself.  You don't need to use a 3rd party exchange to use bitcoin.  Just like MtGox had nothing to do with bitcoin itself, neither does this.  That you were 'waiting' for a story like this tells everyone who cares about your confirmation bias, ignorance, and lack of objectivity.

Secondly, you double down on the cheerleading and strawmanning with this whole 'gold vs. bitcoin' schtick.  Very few bitcoiners are against gold, and those that are are morons.  Gold and bitcoin are complimentary more than they are competitors.  Gold is the worlds best store of wealth.  Bitcoin and other blockchain / crypto-currencies are the worlds best mediums of exchange.  Those are complementary functions for a complete monetary system.

Grave's picture

this article is just another pathetic fud attempt by chump clowns trying to suppress the rise and scare people into panic selling

not gonna happen, bitcoin is about to break out and break through ath.
and its going to happen over and over way into high four digit value until there's another good correction

then the same process starts over (in a span of few years),
except the next target is in high five digits :D
by the time we hit mid 2020s, its going to enter next phase with final target of mid six digits, with euphoria spike to high six digits, possibly seven
(and thats only reaching the gold market cap, how high it goes from there, well lets just say this is going to be the biggest wealth transfer in history,
a lot of thieving psychopaths in power will be rekt because they are stuck in fraudulent stock "market" with imaginary valuations based on out-of-thin-air debtfiat :p)

lmao at dumbasses who sold.
buy and hodl .

RedDwarf's picture

4 digits again is virtually guaranteed.  5 digits is possible if not likely.  If it becomes that popular however BTC's transactional overhead and structural design may cause it to implode, so it's not guaranteed to survive the future stress tests of high use.  If it does, then it will become a significant world currency.  That means 5 digits for sure, with low 6 digits as a possibility in time.  I don't expect that to happen for many years and I think there is a good chance BTC is replaced before then.  It will reach 7 digits IMO only if it becomes the world's reserve currency.

Grave's picture

bitcoin protocol is the backbone of future fintech
much like internet itself, it can, is and will be extended and improved by additional layers (bitcoin being a backbone settlement layer)
the technology for virtually unlimited transactions per second is already being implemented (segregated witness, lightning network, payment channels)

HRH of Aquitaine's picture

I posted a link to this story yesterday as an "off topic" thread. Saw this on Bloomberg Asia, don't ask me what I was doing up at that time of day it doesn't matter!

I have made similar comments to the PM folks (btw, I am a PM hoarder / stacker) about claims about sinking boats. That sounds great until you have to deal with the IRS. I am hoping the IRS will be more user friendly under Trump than under Obama but you can't just break the law.

A taxable PM event happens on the SALE of the item. Period. If you think you can claim you don't have a receipt of purchase, fine. If you want to pay that 28% short-term capital gains tax on a collectible because your boat sank, go ahead. I dare those folks to pay that tax. Or face going to jail. The IRS can put a lien on your house, your car, and your bank account. If you want to dick around with the IRS, go ahead. Not my cuppa tea.

It is a shame that PM folks do not adequately educate their buyers. JM Bullion does attempt to educate the buyer and has excellent information on their web site. If folks think they can fuck around with the IRS, go ahead. That didn't work out very well for Erwin Schiff or Martin Armstrong. Just saying.

PT's picture

Hmmm, either you spend each day worrying about where your next meal is coming from, or you have nice things but are forever looking over your shoulder.

Comes a point where the law is irrelevant and your only defence is to not be there.

HRH of Aquitaine's picture
HRH of Aquitaine (not verified) PT Dec 1, 2016 10:53 PM

When the IRS confiscates your house, your car, and your bank account, get back to me.

Obviously you don't own shit and can slink off and sleep on the beach. Great when you are 25 yo. Not so much when you are 50, or 60, or 70 and actually have assets (other than a keyboard).

Golden Phoenix's picture

'Back in April 2012, francis_sawyer was really giving fonestar the business in these threads...'   

 

In April 2012 Bitcoin was trading under $5.

Today it has traded at $770, 154 times that amount.

Taxes are not typically payable on a profit until the profit is realized.

If Fonestar still holds his Bitcoins he probably doesn't even owe any taxes yet.

 

Fonestar practically begged everyone including Francis to buy Bitcoin.

Francis sure showed Fonestar a thing or two didn't he.

 

 

nmewn's picture

"I just find it amazing how many played by the establishments rulez as their final act of defiance." - infamous boat captain nmewn ;-)

mrpxsytin's picture

You just don't understand the magic power of the internet. If more people believed in the magic then it would work. Like believing in faeries. If enough people believe that it is anonymous then so it shall become.

PT's picture

"I'm quite sure someone else read all the source code and it all checked out good so I trust it." - Funny thing is that this is why people trust EFTPOS and Credit Card technology too.

At the end of the day it works because someone else wanted it to work and it stops working because someone else wanted it to stop working.

TVP's picture

"You want Bigcoin to rule?  End the Fed.  Till then, stop whining."

Bitcoin is not a sovereign nation that can be invaded or conquered.  It's a new technology that has been discovered.  It's like e=mc2.  You can't regulate e=mc2 out of existence, it's just a law of the universe.  Once it has been discovered, it can't get bombed back into pandora's box. 

And how do you propose we end the fed?  Burn every dollar in existence?  Stop the printing presses?

Don't we all agree that a new, non-fiat, non govermnet issued, deflationary medium of exchange without third parties must emerge in order to replace the existing tyrannical system?  Hmm, if only one of those existed, we could all begin using it, become our own banks, and begin to make obsolete the debt-based units of currency, eventually making central banks irrelevant....nah, let's just keep whining "end the fed".

 

auricle's picture

It's going to be fun watching the price of bitcoin over the coming weeks. The tax man cometh.

evoila's picture

A one Juan Suarez:

http://members.calbar.ca.gov/fal/Member/Detail/268859

 

1/22/2010 Admitted to The State Bar of California

 

Uh oh.

BennyBoy's picture

 

Goldman doesnt understand how blockchain works so their division called the "US gov bitches" is gonna get them a blockchain and figger out how its done.

And because it took some time, somebody gots to do some time.

Our corporate masters need free digital innovation and free natural resources.

Whatz hard to understand?! Our masters iz stupid and lazee.

MCDirtMigger's picture

Did you wipe it, like with a cloth or something?

TeamDepends's picture

Yes, but it was more like torching it with bleach, which was, at the time, our understanding of then current IRS protocols. If mistakes were made, we blame the Devil.

SHEEPFUKKER's picture

You'll have to pry my BTC from my cold, dead hands. 

Gold Pedant's picture

CoinDisgrace does that to their users on a regular basis. They take your money to the tune of hundreds or thousands of dollars, let you play around with it for a few days or weeks, and after that period, they refuse to let you make transactions over, say ten dollars. So then they ask for MORE information and try to get things like your SSN, pictures of your driver's license, DNA samples, etc., and they then lock you out of your account and ban you once they have that info. To get unlimited transfers on PayPal, all that it takes is an SSN and verifying through checking account deposit amounts. If it's that straightforward with those hacks, CoinDisgrace has nowhere to stand.

Raffie's picture

My digital Dog ate it.

They are getting desperate for funds for sure.

 

 


philipat's picture

I'm sure that fonestar has complied with the IRS ruling and already decalred the capital gains on any Bitcoin sales at a profit or or purcahses of goods using Bitcoin at the market value?

Gold Pedant's picture

Yes, they pick the peak market value of the BTC since 1970 (computer epoch, complicated cyber stuff only FTC/IRS understands, no need to go into explanation) and in perpetuity (BTC is deflationary by design) and weigh all transactions against that. So if BTC ever becomes more valuable than it has been in this 36-year timeframe, you will receive a bill for the newly incurred gains, based on the perpetual look-back period. Just like the potential liability of a short sale gone awry, hahahaha. Better stick with FRNs and UST and cool novelties that make you lots of money like ARS, OR ELSE!

 

--GP

AnngeloJamaica's picture

The resolution to the problem is really quiet simple,

We have no data it was hacked by the Russians.

Have a nice day.  I do believe the IRS is familiar with that routine.  

Problem solved.  

Crash Overide's picture

Why do they always have to take the fun out of everything...? record taxes collected, record national debt.

FUCK YOU!

 

End the FED, End the IRS.

07564111's picture

If ya likes your blockchains you can keeps ya blockchains.