Bitcoin exchange Coinbase is under scrutiny by the government agency the IRS, shocking the community. However, it seems Coinbase will be doing everything it can to protect its customer’s data and possibly fight the summons through litigation.
Also read: IRS Demands Coinbase Records In Surprise Tax Probe
Can the IRS Really Sift Through All Coinbase Customers Transactions Over Three Years?
As Bitcoin.com reported earlier this week, the IRS has summoned Coinbase for information concerning customer data over the past three years. According to the summons, the IRS has identified three people who have chosen to use bitcoin as a means to evade taxes. Following this petition, Coinbase addressed customers via the company blog. The post titled “protecting customer privacy” explained the firm will do what it can to object to the IRS summons.
“We want to work with law enforcement – that’s generally our policy,” said Coinbase attorney, Juan Suarez. “But we can’t tolerate sweeping fishing expeditions. We are very concerned about the financial privacy rights of our customers.”
The IRS states as an agency it is responsible for enforcing and administrating U.S. tax policies, and the organization has determined “virtual currency that is convertible into real currency has tax consequences that may result in a tax liability.” In a request to Coinbase, the agency wants documentation on all U.S. persons from January 2013 to December 2105 in accordance with IRS Notice 2014-21.
While IRS Chases Tax Offenders, Coinbase Could Deny Request
According to Reuters Chris Padovano, a lawyer and the founder of Decentralized Legal, says he believes Coinbase may “turn back the government’s request.”
“There are two questions here. One is whether or not (the IRS has) reasonably identified a class of individuals and has a reasonable basis for believing that all U.S. customers for Coinbase from 2013-2015 may have failed to comply with laws based on these three users,” Padovano told Reuters. “Two is whether the information sought by IRS is not available from any other reasonable source than Coinbase.”
Meanwhile, IRS agent David Utzke said his team was following tax offenders that were using cryptocurrency and not reporting. Mr. Utzke told New York Times author Nathaniel Popper that two companies were involved with these offenders and one of those businesses was Coinbase.
“The risk/reward ratio for a taxpayer in the virtual currency environment is extremely low, and the likelihood of underreporting is significant,” Mr. Utzke explains. “The characteristics of virtual currencies could enable them to replace traditional abusive tax arrangements as the preferred method for tax evaders.”
Are Other Exchanges Being Summoned by the Government?
Coinbase noted that its customers are important and the firm’s legal team is reviewing the matter. Coinbase says, “in its current form, we will oppose the government’s petition in court.” Additionally, the exchange says it will keep customers informed of the government request.
It will be very interesting to see what happens with the IRS summons. It is possible the firm can deny the request, but may have a legal battle ahead of them. Meanwhile, the cryptocurrency community has been upset, even asking if Circle has been summoned by the agency. One commenter on Reddit couldn’t believe the IRS would “look through ~50 million transactions” of 5-6 million customers. Yet many people think the IRS will do just that to get its hands on money the government believes it deserves.
Do you think Coinbase has a chance at fighting back? Let us know in the comments below.
Images via Shutterstock, and the Coinbase website.
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