A judge has ordered digital currency broker Coinbase to hand over the details of 14,355 users to the Internal Revenue Service (IRS).
Filed on 28 November with the U.S. District Court in the Northern District of California, the court order (PDF) demands that Coinbase provide information on 8.9 million transactions involving more than 14,000 of its users to the United States’ federal revenue service. The Summons applies to accounts that completed at least a single transaction involving at least $20,000 in Bitcoin between 2013 and 2015. It does not pertain to users who merely bought Bitcoin and did nothing with it or to those for whom Coinbase filed Forms 1099-K during the same period.
The information covered in the order includes account activity, periodic invoices, and key identifying information such as a wallet owner’s name, address, tax identification number, date of birth, and copies of their passport or driver’s license.
IRS filed the request to reconcile a tax disparity. Users are supposed to pay capital gains tax on cryptocurrency transactions, with such currency listed as property by the IRS. However, the IRS has documentation indicating that not everyone who engaged in a cryptocurrency transaction paid their dues.
The court order makes this legal purpose clear:
The Narrowed Summons serves the legitimate purpose of investigating the “reporting gap between the number of virtual currency users Coinbase claims to have had during the summons period” and “U.S. bitcoin users reporting gains or losses to the IRS during the summoned years.” (Dkt. No. 65 at 11:4-6.) Coinbase is the largest U.S. exchange of bitcoin into dollars with at least 5.9 customers served and 6 billion in transactions while only 800 to 900 taxpayers a year have electronically filed returns with a property description related to bitcoin from 2013 through 2015. This discrepancy creates an inference that more Coinbase users are trading bitcoin than reporting gains on their tax returns.
This decision is the latest development in a lawsuit filed by the IRS in November 2016. At the time, the federal revenue service demanded information on all U.S. Coinbase users. The digital broker sued and a judge agreed, which led the IRS to file this narrower summons. Coinbase sued once again, but this time, the courts ruled against its position.
At this time, it’s unclear how Coinbase will proceed with handing over the information.
News of this ruling follows several months after a U.S. District Court in the District of Connecticut ordered two Bitcoin mining companies to each pay a $10 million penalty for conducting a Ponzi scheme orchestrated by their principal.