Coinbase to turn over information to IRS. What does it mean for the bitcoin day trader?
By admin of MillarLaw A Professional Corporation On Saturday, December 2, 2017
By Ani Galyan Esq, CPA, LLM
On December 6, 2016 the Department of Justice (DOJ) served a “John Doe” summons to Coinbase, a San Francisco based exchange of cryptocurrency, to produce records of accounts held by U.S. taxpayers for the period of 2013 through 2015. In IRS Notice 2014-21, the IRS took the position that virtual currency is treated as property for tax purposes, and thus the exchange of virtual currency is a reportable transaction. In its investigation, the IRS identified a limited number of taxpayers reported transactions conducted in virtual currency: 807 individuals in 2013; 893 individuals in 2014; and 802 individuals reported in 2015. The purpose of the summons was to gather information which may be relevant to the IRS’s investigation of under reporting of transactions conducted in virtual currency.
After motions were filed, DOJ limited the summons to records of accounts with equivalent of $20,000 in any one transaction during the period of 2013 through 2015. On November 29, 2017, a San Francisco Court ordered Coinbase to comply with the limited summons, and produce records of names and identifying information of counterparties of transactions that come within the information sought by the IRS. In addition, Coinbase will turn over information identifying source of funds used by Coinbase account users in connection with virtual currency transactions.
This would include the identities of 14,355 traders who engaged in transactions on Coinbase’s exchange. Coinbase is the largest exchanger in the U.S. of virtual currency. In addition, Coinbase is the issuer of The Shift Card, a Visa branded debit card that enables Coinbase users in the US to spend bitcoin anywhere VISA is accepted. This could have large implications for taxpayers who have not reported cryptocurrency activity.
The IRS is conducting an investigation to determine the identity and correct federal income tax liability for U.S. persons who conducted cryptocurrency transactions. Taxpayers who previously ignored reporting trading activity of cryptocurrency need to consider whether information relating to their accounts will be subject to the summons. In addition, taxpayers need to consider whether an amended return(s) or a domestic voluntary disclosure is necessary for previously unreported income from trading activity. Additional hazards come about if the U.S. taxpayer’s cryptocurrency activity involved foreign exchanges, as foreign financial accounts and foreign assets are also subject to reporting under the Internal Revenue Code and the Bank Secrecy Act. Foregoing reporting of cryptocurrency activity is a thing of the past, because enforcement is inevitable as the IRS focuses on under-reporting of cryptocurrency