On Wednesday, a US federal judge authorised a summons requiring Coinbase, America’s largest Bitcoin service, to provide the IRS with the records of every user who traded on the site between 2014 and 2015. Covering the identities and transaction histories of millions of costumers, the request is believed to be the largest single attempt to identify tax evaders using virtual currency to date.
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As a so-called “John Doe” summons, the document targets a particular group or class of taxpayers — rather than individuals — the agency has a “reasonable basis” to believe may have broken the law. According to The New York Times, the IRS argued that two cases of tax evasion involving Coinbase combined with Bitcoin’s “relatively high level of anonymity” serve as that basis.
“There is no allegation in this suit that Coinbase has engaged in any wrongdoing in connection with its virtual currency exchange business,” said the Justice Department on Wednesday. “Rather, the IRS uses John Doe summonses to obtain information about possible violations of internal revenue laws by individuals whose identities are unknown.”
In a statement, Coinbase vowed to fight the summons, which the company’s head counsel has previously characterised as a “very, very broad” fishing expedition.
“We are aware of, and expected, the Court’s ex parte order today,” wrote a Coinbase spokesperson on Reddit. “We look forward to opposing the DOJ’s request in court after Coinbase is served with a subpoena.”
In 2014, the IRS released a notice clarifying that virtual currencies like Bitcoin are property and subject to tax laws as such. Among other things, this means taxpayers are required to report profits made through trading them as taxable income.