If you have even a passing interest in Bitcoin as a technology or as an investment, it is highly likely that you have already heard about the IRS’s attempts to crackdown on improper use of Bitcoin and other cryptocurrencies such as Ethereum. The IRS believes that a significant number of high income and high asset taxpayers are utilizing Bitcoin as their latest tax evasion gambit. While it is unclear exactly how many wealthy Americans are using Bitcoin and similar blockchain-based technologies for tax evasion and other nefarious purposes, it is a near certainty that many well-meaning but non-compliant taxpayers will be identified as the IRS seeks to identify taxpayers who have failed to disclose and pay income taxes and capital gains taxes on Bitcoin income.
If you have mined for Bitcoin or invested into Bitcoin and have yet to consider the tax implications of such action, the Roseville tax attorneys of the NewPoint Law Group, LLP may be able to assist. To discuss whether your activities with Bitcoin have created taxable events or tax reporting obligations, call 800-358-0305 today or contact our firm online.
IRS Filed John Does Summons to obtain Accountholder Information
The IRS attempted to use a familiar tactic that had been successful in past enforcement efforts. Through a John Doe summons, the IRS and other government agencies can obtain an account holder’s name and other information when the IRS believes that fraud or other illegal activity is occurring. Thus, the key elements when a John Doe summons is filed are:
- The summons related to the investigation of a certain person or an ascertainable class of people.
- A reasonable basis exists for the belief that the individual or class may have failed to comply with a tax law or another provision contained in the Internal Revenue Code.
- The information sought by the summons is not readily ascertainable from alternative sources.
The summons filed by the IRS were seeking the account information of United States persons who, at any time during the period starting January 1, 2013, through December 31, 2015, conducted transactions in a convertible virtual currency with Coinbase.
IRS May Be Changing Tactics in Fight Against Tax Evasion through Bitcoin
Despite the apparent legal sufficiency of the summons, Coinbase account holders and Coinbase have challenged the IRS’s attempt to subpoena these records. Petitions opposing the release of these records to the IRS have been filed by Coinbase user Jeffrey K. Berns and Coinbase itself. Furthermore, the Co-Founder and CEO of Coinbase, Brian Armstrong, has made public appeals to the IRS regarding “better reporting” presenting the better path forward for both the company and tax agency. Furthermore, Armstrong claims that his company has:
…worked to comply with all IRS guidance in our space, beginning with the March 2014 guidance on virtual currency. Specifically, we began filing 1099s for merchants who accept digital currency through Coinbase, responded to numerous subpoenas for specific cases, and even proactively created a cost basis report for our customers to assist them in reporting their taxes.
The company has offered to be the first digital currency “wallet” to implement procedures that would issue a 1099-B at the end of the year to all U.S. customers and send a copy to the IRS.
Perhaps these offers by the Coinbase CEO and an apparent willingness to work in good faith with the IRS has motivated the parties to change tactics. Recently the IRS filed a motion seeking to delay a hearing originally scheduled for February 16, 2017. The petition was filed with the consent of Coinbase and states that “…if more time is provided a hearing on movants’ motions may be avoided altogether, sparing the Court’s judicial resources and the Parties’ time and expense.”
Thus, the most recent filing suggests that the parties are close to an agreement in some form. Considering statements concerning the overbroad nature o the summons, one can probably assume that Coinbase will agree to provide information that is more limited than the IRS was originally seeking. However, this is not necessarily good news for taxpayers who fear Bitcoin tax problems. A more targeted approach is likely to zero in on U.S based accounts where there are questions regarding tax compliance. Thus, taxpayers who have already complied with their due diligence are likely to be spared from additional annoyance, however, taxpayers with Bitcoin tax issues are still likely to face tax problems as Coinbase hands over a more targeted set of records.
Fix Bitcoin Tax Mistakes Today with a Roseville Tax Attorney
If you are concerned about a failure to report Bitcoin income or unpaid capital gains taxes, the Roseville tax levy lawyers of the NewPoint Law Group, LLP may be able to help. To schedule a confidential tax consultation at our Folsom or Roseville, California law offices call 800-358-0305 today or contact us online.