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Court Grants IRS Summons Seeking Bitcoin Users’ Data from Coinbase

Last Updated March 4, 2021 4:52 PM
Samburaj Das
Last Updated March 4, 2021 4:52 PM

A federal judge has approved  an Internal Revenue Service summons requiring bitcoin wallet and exchange Coinbase to disclose transaction records of bitcoiners between January 1, 2013 and December 31, 2015.

In statements, Caroline D. Ciraolo, head of the Justice Department’s Tax Division stated:

As the use of virtual currencies has grown exponentially, some have raised questions about tax compliance. Tools like the John Doe summons authorized today send the clear message to U.S. taxpayers that whatever form of currency they use – bitcoin or traditional dollars and cents – we will work to ensure that they are fully reporting their income and paying their fair share of taxes.

The “John Doe” summons – different from a normal summons since it doesn’t relate a specific known individual but an entire group –  by the IRS was authorized by a federal judge at the Northern California District Court on November 30, giving the tax agency the all-clear to investigate alleged tax fraud by Coinbase users, specifically bitcoiners.

Soon after the court order came to light, a Coinbase representative confirmed  that the exchange expected the order and is gearing up a legal defense of its own in court.

“We are aware of, and expected, the Court’s ex parte order today. As we stated before, we look forward to opposing the DOJ’s request in court.,” said the representative on Reddit.

The civil petition was originally filed on November 17 with an excerpt of the filing nodding “to the investigation of an ascertainable group or class of persons, that there is reasonable basis for believing that such group or class of persons has failed or may have failed to comply with any provision of internal revenue laws.”

The bitcoin and ether exchange was served the summons where the IRS is seeking to look into transactions before Coinbase began support for Ethereum’s token ether this year.

The Scatterfire IRS Approach

Coinbase has remained steadfast in its intention to oppose the IRS request  since the mid-November petition and stated the following after the court order:

We are aware of, and expected, the court’s ex parte order today. We look forward to opposing the DOJ’s request in court after Coinbase is served with a subpoena. As we previously stated, we remain concerned with our US customers’ legitimate privacy rights in the face of the government’s sweeping request.

The ‘sweeping request’ by the IRS stems from its own inability to develop a viable, effective digital currency taxation strategy, as evidenced by a damning report by the Treasury Inspector General who basically scolded the IRS days before its summons toward Coinbase.

The IRS summons could set a dangerous precedent for privacy.

Fundamentally, the IRS sees reason to believe that a group of individuals could be tax evaders and is wielding its authority as the tax collector to look into millions of customers accounts, thereby accessing their personal details, transaction histories that are certain to include online shopping spends and more.

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