# IRS girds loins, goes after Bitcoin users



## iota2014 (Jul 30, 2015)

Controversial IRS Request To Coinbase Highlights Need For Updated Tax Guidelines



> Last week, the US Department of Justice (DOJ) filed paperwork in federal court requesting the disclosure of all Coinbase US customers’ records over a three-year period. The request was made on behalf of the Internal Revenue Service (IRS), which sought the authority to serve a John Doe Summons on Coinbase.
> 
> A John Doe Summons is an order that does not specifically identify a person but rather identifies an ascertainable group or class by their activities. The term John Doe Summons achieved notoriety in July 2008 when the procedure was used to crack the back of Swiss secrecy laws, which ultimately ended up in UBS turning over the names of nearly 4,500 holders of Swiss bank accounts to the IRS.
> 
> ...


Indiscriminate breadth of request...assuming an individual is evading taxes...unclear requirements...compliance very complicated... Sound familiar?

It will be interesting to see if either side mentions FATCA, if it comes to court


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## iota2014 (Jul 30, 2015)

A Coinbase user has filed suit to stop the "John Doe" summons ordering the handover to the IRS of the identities and transaction histories of all Coinbase customers since 2013.



> The motion filed today in San Francisco seeks to quash the summons. In the law, a motion to quash a summons means that the moving party (the person who files the motions) is asking the judge to set aside a prior action. In this case, the moving party is Jeffrey K. Berns, the Managing Partner of Berns Weiss LLP, who estimates that over a million Americans may be subject to the IRS summons. Berns is not only the partner of a law firm which focuses on technology, including virtual currencies: he is also a Coinbase user who has bought and sold bitcoins.
> 
> "There is no legitimate reason to seek these records," said Berns. "Individuals with no taxable events shouldn't be subject to a complete investigation because the IRS doesn’t understand a developing technology."


Coinbase Customer Files Motion To Block IRS From Accessing User Info


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## iota2014 (Jul 30, 2015)

The _New York Times_ says:



> The I.R.S. inquiry shows how Coinbase is now important enough to draw the same kind of scrutiny as more established banks. That shift also is apparent in a new initiative by the Comptroller of the Currency, one of the federal banking regulators, that would allow fintech companies to apply for a new charter to become a “special purpose national bank.”
> [..]
> As The New York Times reported, the idea is to extend oversight to companies moving into services provided by traditional banks that have largely avoided direct regulation. The new type of charter could help fintech firms avoid dealing with a patchwork of laws that make expanding their businesses more difficult while extending federal regulatory oversight.
> 
> One of the crucial requirements for any bank or broker is compliance with the strict rules against money laundering, especially the “know your customer” requirement that largely prevents secret accounts and untraceable transactions. An interesting question is whether companies like Coinbase that provide a repository for virtual currencies will migrate toward becoming more like banks or stock brokerages that would remove the anonymity they now provide to users of their services.


http://www.nytimes.com/2016/12/05/b...f-age-government-seeks-an-oversight-role.html


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## iota2014 (Jul 30, 2015)

Coinbase are putting up an admirable and principled resistance to the IRS attempt to get all their customers' entire transaction records without having to show reason. (Much like FATCA.)

Comments from the blog of Coinbase CEO Brian Armstrong (https://medium.com/@barmstrong/coinbase-and-the-irs-c4e2e386e0cf#.9ru957dsp):


> In the past, Coinbase has complied with a number of IRS subpoenas that are specific to individuals and meet appropriate standards. However, their most recent subpoena asks us to turn over records on all customers (including transaction history, IP addresses, transcripts with customer support, etc). Suffice to say, we feel the IRS’s subpoena is overly broad and incorrectly implies that all users of virtual currency are evading taxes. Asking for detailed transaction information on so many people, simply for using digital currency, is a violation of their privacy, and is not the best way for us to accomplish our mutual objective.
> 
> If the IRS were to approach Citibank, Fidelity, or Paypal and ask them to turn over all customer records, they would rightfully push back. And I feel we have the same obligation to do so.


Armstrong is offering a solution:


> As I mentioned above, Coinbase and the IRS have (I believe) a shared goal to ensure all U.S. customers pay their taxes. I believe a good option would be to use the same third party reporting mechanism that brokerage firms like Fidelity and Charles Schwab use today: the 1099-B form. We’d ideally like to see that structure applied evenly to all companies in the industry, but even if we’re required to go first, we’re ready to implement 1099-B reporting.
> 
> With this potential solution, Coinbase (and other virtual currency exchanges) would issue a 1099-B at the end of the year to all U.S. customers, and send a copy to the IRS. This would make it easy for users of virtual currency to pay their taxes without violating their privacy. 1099 forms provide a simple summary of gains or losses on trading activity, instead of full transaction records, transcripts with customer support, IP addresses, etc.
> 
> ...


It will be very interesting to see how the IRS - under their new boss - responds to these eminently reasonable proposals.


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## iota2014 (Jul 30, 2015)

From Forbes (https://www.forbes.com/sites/kellyp...-challenge-irs-on-info-grab/2/#4c56b5d716ed):



> *Court Allows Anonymous Coinbase Customer To Challenge IRS On Info Grab*
> 
> ""John Doe 4" has been granted the right to intervene in an ongoing court case between the Internal Revenue Service (IRS) and Coinbase, a company which facilitates transactions of digital currencies like Bitcoin and Ethereum. That gives the anonymous Coinbase customer the ability to contest the IRS' efforts to identify and obtain Coinbase customer information. The Judge's Order found that "John Doe 4" made a "sufficient showing of abuse of process to support intervention as of right."
> [..]
> ...


*

The parallels with FATCA seem clear: the IRS is in fact requesting bank records for every United States customer from every bank branch in the world - except those in the United States.*


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## Bevdeforges (Nov 16, 2007)

iota2014 said:


> The parallels with FATCA seem clear: the IRS is in fact requesting bank records for every United States customer from every bank branch *in the world* - except those in the United States.


The IRS already has everything they need from the banks in the US via 1099s, which are reported by SSN. What more do they need for the US bank accounts?
Cheers,
Bev


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## iota2014 (Jul 30, 2015)

Point taken - I suppose it's the extent of information being requested for each customer, rather than the fact that every customer's information is being requested, that the court was commenting on. Whereas the problem with FATCA is the extent to which accounts are treated as reportable.

So it's probably unlikely that a win for John Doe 4 in the Coinbase case would have any relevance for FATCA.


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