Coinbase Ordered To Release Bitcoin Customer Records to IRS

A California federal court has ordered Coinbase to turn over identifying records for all users who have bought, sold, sent, or received more than $20,000 through their accounts in a single year between 2013 and 2015. Coinbase estimates that 14,355 users meet the government’s requirements.

For each account, the company has been asked to provide the IRS with the user’s name, birth date, address, and taxpayer ID, along with records of all account activity and any associated account statements.  The result is both a definitive link to the user’s identity and a comprehensive record of everything they’ve done with their Coinbase account, including other accounts to which they’ve sent money.

If you read any Bitcoin news lately, then you know that, US Magistrate Judge Jacqueline Scott Corley for the US District Court in San Francisco ruled Wednesday that the exchange must supply the tax agency with the identities of all users in the US who conducted at least one bitcoin transaction equivalent to at least $20,000 between 2012 and 2015. Corley said a “reporting gap” gave the IRS legitimate reason to demand the information.

“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,” Corley wrote in her judgment. “The IRS has a legitimate interest in investigating these taxpayers.”

Whether or not this ruling on Coinbase will extend out to other wallets, bitcoin traders, and other platforms remains to be seen. The Justice Department said in a filing last year that an IRS agent had identified three cases in which cryptocurrencies were used to avoid paying taxes. Two of those cases involved Coinbase customers with millions of dollars in annual revenues, the filing alleged.

Bitcoin and IRS Reporting

If you have bitcoin holdings, and are unsure of your reporting requirements – please contact our office.  We have extensive experience dealing with the taxation of virtual currency.