The recent Internal Revenue Service request to Coinbase, seeking records of customers who purchased virtual currency from 2013 to 2015, has led to a flurry of media attention both in the U.S. and worldwide. This action affecting America’s largest Bitcoin exchange — arguably the most comprehensive sweep of virtual currency for the purpose of identifying lawbreakers — has massive implications for the future of financial privacy and taxation.
Documents filed by the IRS signal the agency’s intent to pursue both egregious tax evaders, as well as small, everyday users who use bitcoin and other forms of digital currency as a potential dodge for paying taxes. In the John Doe Summons, the IRS alleges that they have uncovered three instances where people have used bitcoin to evade taxes — two involving Coinbase customers. Based on these findings, the IRS. now surmises that many more people are utilizing digital currency for similar aims.
This unprecedented action follows a Treasury Department Inspector General report, which casts blame on the IRS for failing to establish guidelines and take aggressive action to address what it believes to be unlawful activities on the part of digital currency users.