The IRS is looking for user data from Bitcoin customers causing tensions in regards to compliance and privacy. The agency has requested that Coinbase turn over records on users who have completed transactions between 2013 – 2015.


Kevin E. Thompson CPA says “I began looking at the Bitcoin phenomenon maybe 5 – 7 years ago. My long-time business associate said I should check this out and the Burger King on Pico and 20th started accepting Bitcoin. So, I did. I am not normally a risk-averse person but this stuff had risk written all over it. The rest of this article validates why I stayed away.” Thompson says “but that doesn’t mean everyone stayed away.”


Coinbase currently has nearly 5 million users. Their main concern is that they will be required to turn over their customer’s financial records. The IRS has previously targeted banks but didn’t require them to turn over data on most of its account holders. What they are asking Coinbase to do is much broader. The company is concerned that innocent as well as fraudulent customers will have their privacy violated.


For instance, if you have bought books, considered to be politically incorrect, the government will have a record of it. The IRS feels that most Bitcoin users are suspect because cryptocurrency doesn’t require using third parties to report information to the government. This increases non-compliance.


Coinbase, known for its “know your customer” and monitoring practices has said it will appeal the John Doe summons if it goes to court.


Generally, the company adheres to law enforcement requests if they are reasonable. However, what the IRS is asking for, goes beyond those boundaries. The have demanded that Coinstar give them information on their customers for a three-year period.


Though the summons allows the agency to go after anonymous tax evaders, it cannot investigate specific individuals according to the IRS internal Revenue Manuel.  They also cannot issue that information be released to conduct “fishing expeditions” based on assumptions.


Some say the IRS is doing the right thing asking for Bitcoin customer data. They believe it would be a way for them to sense how the digital currency is being used by taxpayers to avoid paying taxes. It would also help them determine the size of the market and what percentage of customers are reporting transactions on their tax returns.


Transactional analytics for the Bitcoin market are controlled by local, national, and federal regulations.


Government officials are pressuring the IRS to crack down on Bitcoin tax evasion. Whenever a customer makes a profit they are liable for capital gains tax, which needs to be reported.


Those watching the Bitcoin market are questioning whether the IRS is attempting to go after both individual tax evaders and the companies themselves. Others would rather they spent time on more important concerns because the profit levels of digital currency is low.


Bitcoin users may be driven away from companies like Coinstar, who offer attractive services such as currency conversion and storage services because of privacy concerns.


Contact Kevin Thompson CPA  or call him @ (310) 450-4625 x102