Today in Northern California District Court, a federal judge ordered the Bitcoin wallet service Coinbase to hand over records of all transactions that took place during 2014 or 2015, as part of a larger investigation into possible tax fraud by Coinbase users.
“The taxpayers being investigated have not been or may not be complying with U.S. internal revenue laws requiring the reporting of taxable income from virtual-currency transactions,” the IRS wrote in its request. As a result, the agents argued, anyone conducting a virtual-currency transaction during that period could be reasonably suspected of tax fraud, and requested transaction records on that basis.
While money made through Bitcoin trading is taxable as income, reporting of that income is often inconsistent, so it is likely the records contain at least some instances of tax evasion. While transactions between wallets are visible in Bitcoin’s public ledger, only Coinbase has the necessary data to identify the owner of each of its wallets, a necessary step in assessing their tax status.
Still, Coinbase has expressed concerns about the broad scope of the order, which uses the possibility of fraud to justify wholesale collection of all transactions over the course of two years. “Although Coinbase’s general practice is to cooperate with law enforcement, we are very concerned with the indiscriminate breadth of the government’s request,” the company wrote in a statement to Ars Technica when the IRS first requested a warrant.
It is unclear whether Coinbase will appeal or otherwise resist the order; the company did not immediately respond to a request for comment.
The order has also drawn significant criticism from many in the Bitcoin community. “Americans would be shocked if the IRS asked a financial institution in good regulatory standing to turn over the names, addresses and shopping histories of millions of customers just because the IRS thought there might be some tax cheats among them,” Coin Center’s Jeremy Brito wrote in an editorial earlier this week.