Following a summons from the Internal Revenue Service (IRS) to bitcoin exchange Coinbase to reveal customer information, the firm has enacted stiff opposition to the request.
The US tax authority requested information on all of Coinbase’s customers who bought bitcoin between 2013 and 2015. Pointing to just three instances of tax evasion through the use of bitcoin, an IRS agent claims at least two of these incidents were aided and abetted by Coinbase. Along with the view that bitcoin conceals individual’s identities, the IRS is especially interested in investigating virtual currency users further to uncover more potential tax evasion cases.
As the largest exchange in the US, the request from the IRS would see the full transaction history of millions of Coinbase’s customers handed over. However, the bitcoin exchange’s head legal counsel, Juan Suarez, stated on November 18:
“We want to work with law enforcement, that’s generally our policy. But we can’t tolerate sweeping fishing expeditions. We are very concerned about the financial privacy rights of our customers.”
The effortless sweep of customer information to identify bitcoin users is eerily reminiscent of the mass surveillance campaigns that Edward Snowden warned the public about, where gigantic amounts of data were captured and then combed through afterward. Tailored requests have been complied with in the past by the exchange and Coinbase are required by regulators to verify the identities of all users, but a ‘fishing expedition’ on this scale is, so far, unprecedented.
Following the tax rules enforced in 2014, any gains on the sale of bitcoin must be recorded to the IRS. It is this information that the authorities are claiming to not have adequate access to; with this information the IRS could then determine whether their users are making the correct tax payments. Despite this, Coinbase will stand firm and keep their user’s privacy safe, at least as a collective.
Also, it remains to be determined as to whether the IRS is able to gather the information without the cooperation of Coinbase, so the case for such a sweeping request may, in fact, be unfounded.
Reuters reported on November 20 that lawyer and founder of Decentralized Legal, Chris Padovano, stated that he expects Coinbase to refuse the government’s request.
“It’s very likely, considering their customer base and the philosophical base of most of their users, that Coinbase will challenge this summons. I think that they need to keep their base somewhat appeased.”
While at first, it may seem that the government’s hand has been too heavy on Coinbase, Padovano goes on to say that he is unsure whether the actions of two individuals could provide the rationale for a case against the exchange to release user information.
The IRS maintains that the group of people using Coinbase have been separated from the general public due to the characteristics of being a US citizen transacting in digital currency, in which the summons states digital currencies possess a more favorable risk to reward ratio for tax evasion relative to more traditional methods.
However, legal analyst Padovano says that questions surrounding whether or not this is a good enough reason for such an extensive request remain.