Coinbase to Turn Over Names of Bitcoin Customers

Hot Topics, Offshore Account Update

Posted on December 16, 2016 |

In 2015, more than $10 billion of transactions took place using Bitcoin. Bitcoin is a virtual currency and its use has been increasing, especially after the IRS began cracking down on offshore accounts. The increased use of Bitcoin has not escaped the notice of the IRS, though.  The U.S. Treasury Inspector General for Tax Administration (TIGTA) released a report warning of the fact that virtual currencies are being used to evade taxes and the IRS has turned to the Department of Justice for assistance in investigating possible tax evasion using Bitcoin.

The Department of Justice asked a federal court to grant a petition for a John Doe summons to be used to obtain customer information from Coinbase, which is a virtual currency exchange. The court granted the summons in late November and consumers who traded in virtual currency may now have their identifying information given to the IRS. If the IRS crackdown on virtual currency trading has you concerned, you should consult with a New Jersey tax attorney to find out what options are available to you.

The IRS Can Use a John Doe Summons to Obtain Information from Coinbase

A John Doe summons is a powerful investigative tool that the IRS has used to obtain information about accountholders from Bank of America and HSBC. Essentially, this summons is used when the IRS wants to compel the release of information about an unknown person or group of persons.  A court must approve a John Doe summons, and the Department of Justice got a federal court in California to do that recently.

In order for a court to allow a John Doe summons, the IRS must be seeking information about a person or identifiable group of people because there is reason to suspect that group of people are not in compliance with tax laws. Information the IRS is trying to obtain must not be available from other sources. 

Internal investigation guidelines indicate that a John Doe summons shouldn't be requested until the IRS investigation has already passed the preliminary stage of gathering information. There should be a credible reason to believe tax evasion has happened before a summons is requested.  IRS agents typically make declarations about the investigation, and the DOJ then asks the court to grant permission for a John Doe summons while presenting these declarations from IRS agents to justify the summons.

Because the court approved the request of the Department of Justice, it will now be possible for the IRS to serve the summons on Coinbase and Coinbase will be compelled by the summons to provide personal identifying details on accountholders who engaged in bitcoin transactions between 2013 and 2015. 

The granting of this summons, and the IRS investigation into virtual currencies, may be alarming not just for people who traded on Coinbase but for anyone who may have used a virtual currency to keep transactions private from the IRS. If you are concerned that you may come under investigation for trying to hide money from the IRS, you should talk with attorney Kevin Thorn as soon as possible to try and protect your interests.

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