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Bitcoin Government Communications Network Networking Privacy Security The Almighty Buck The Internet United States Technology

IRS Demands Identities of All US Coinbase Traders Over Three Year Period (vice.com) 124

An anonymous reader quotes a report from Motherboard: In bitcoin-related investigations, authorities will often follow the digital trail of an illegal transaction or suspicious user back to a specific account at a bitcoin trading company. From here, investigators will likely subpoena the company for records about that particular user, so they can then properly identify the person suspected of a crime. The Internal Revenue Service, however, has taken a different approach. Instead of asking for data relating to specific individuals suspected of a crime, it has demanded bitcoin trading site Coinbase to provide the identities of all of the firm's U.S. customers who made transactions over a three year period, because there is a chance they are avoiding paying taxes on their bitcoin reserves. Coinbase has a total of millions of customers. According to court filings, which were first flagged by financial blogger Zerohedge on Twitter, the IRS has launched an investigation to determine the correct amount of tax that those who use virtual currencies such as bitcoin are obligated to pay. But according to the documents, the IRS is asking for the identities of any U.S. Coinbase customer who transferred crypto-currency with the service between 2013 and 2015. "The John Does whose identities are sought by the summons are United States persons who, at any time during the period January 1, 2013, through December 31, 2015, conducted transactions in a convertible virtual currency," reads a memorandum written by Department of Justice attorneys and filed on Thursday, November 17.
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IRS Demands Identities of All US Coinbase Traders Over Three Year Period

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  • by 93 Escort Wagon ( 326346 ) on Friday November 18, 2016 @07:45PM (#53319045)

    "Coinbase has a total of millions of customers."

    This sentence really set off my annoyance sub-processor.

    • That's easily fixed. Throw away the sub-processor and replace it with a co-processor. That way you can be annoyed more constantly without having to give things special consideration.

    • by Yvan256 ( 722131 )

      "Coinbase has a total of millions of customers."

      This sentence really set off my annoyance sub-processor.

      I'm pretty sure that's not an accurate value. It's probably "Coinbase has a total of millions of customers, plus or minus a couple of millions."

  • Fishing Expedition (Score:5, Insightful)

    by gavron ( 1300111 ) on Friday November 18, 2016 @08:03PM (#53319135)

    Coinbase should be able to get this quashed.

    If the IRS had evidence of a crime, they're allowed to get information to further identify the person who committed it.

    If Coinbase had committed a crime, they're allowed to get information as to who else was involved in it.

    However, to subpoena a list of all clients in a certain geographical area over a three year period is to presume them guilty and then look for the innocent. That's a classic fishing expedition, and the courts should disallow it.

    I am not a lawyer. Consult lawyers for legal advice. This is simple common sense.

    E
    P.S. I know the IRS is powerful... but not ALL powerful.

    • Re: (Score:2, Insightful)

      by Anonymous Coward
      You seem confused, you don't need evidence of a crime. With companies that deal as money exchanges they have a legal obligation to record the details of all financial transactions and those need to be made available to the government with a legal request, this doesn't actually require proof of crime with a tax investigation.
      • Re: (Score:2, Interesting)

        by Anonymous Coward

        Exactly. If Coinbase refused to provide the data, THEN they would very likely be charged with assisting money laundering. Anyone who worked in any financial institute would know this.

        i.e. IRS don't need Coinbase to commit a crime to ask for this data, but Coinbase would have committed a crime by refusing.

    • by ShanghaiBill ( 739463 ) on Friday November 18, 2016 @08:11PM (#53319173)

      It is not that simple. The IRS request is not a subpoena, it is an an administrative demand for information. They are not (yet) investigating a crime, but ensuring tax compliance. Your rights during a tax audit are not the same as your rights in criminal court. I hope Coinbase can stop this disclosure, but I am not optimistic. If the IRS prevails, then we should expect most bitcoin transactions to move offshore.

      • by rtb61 ( 674572 )

        In the even of a search warrant they will not be issuing it against the individuals whose records are being stored but against the records of the company storing those coins and records. When banks get audited those audits include the records of all of their customers because that is what is being audited the interactions between the bank and it's customers. So for those cheating, take you imaginary money and run because make no mistake the IRS is coming for you and you will be no happy to see them. You cou

        • PS offshore tax havens will not be the save haven of crime and corruption they used to be, they are powerful social forces building to gut them open and put the juicy bits on public display, not by hackers but by various investigatory agencies (apparently legalised hackers) demanding justice and rule of law.

          Really? Perhaps there are actions against offshore tax havens now, but I don't expect much investigatory action during the next 4 years.

        • You could of course always deny that imaginary money is yours and simply walk away from it, claiming the imaginary coin company service made in all up but you have to give up all your imaginary money.

          Not true.
          You can keep the coins in your wallet and keep your wallet.
          However, if the coin company has documented proof of your transaction requests, it will be very difficult to deny that the coin purchased with the money from your cheque and with the proper bitcoin address isn't yours.
          You may get away with not showing or opening your wallet with that coin, but I doubt you can escape the IRS' claim for unpaid taxes.

      • by PPH ( 736903 )

        it is an an administrative demand for information. They are not (yet) investigating a crime, but ensuring tax compliance.

        The police kicked in my door. The assured me that they were not executing a search warrant, but conducting an administrative audit to ensure compliance with the law.

        • by ShanghaiBill ( 739463 ) on Friday November 18, 2016 @09:19PM (#53319525)

          The police kicked in my door. The assured me that they were not executing a search warrant, but conducting an administrative audit

          The IRS are not "the police". The police must respect the rights of citizens under the 4th Amendment. The IRS has greater powers because of the 16th Amendment. "The right of the people to be secure in their persons, houses, papers, and effects" does not include records that document financial transactions.

          I am not saying this is the way it "should be", I am just pointing out that this is the way it "is". There is no fair and efficient way to enforce an income tax without the government prying into every nook and cranny of our lives.

          • by PPH ( 736903 )

            16th Amendment

            Nothing in there about an exemption from the 4th Amendment. The 16th Amendment simply allows the gov't to levy taxes based on something other than a flat fee per person (the original power defined in the Constitution).

            • Nothing in there about an exemption from the 4th Amendment.

              If the IRS can only request documentation and audit people when they have probable cause that a crime has been committed (as the 4th Amendment requires), then compliance will fall to near zero. Employers will no longer be required to submit W2s or 1099s, and citizens will no longer file returns.

              • by PPH ( 736903 )

                then compliance will fall to near zero

                So the income tax system we have is unsustainable unless everyone's rights are violated. Time to shut it down and come up with something else.

                Hint: Forming a corporation is conditional upon filing an application with the appropriate governing entity. That entity can place any legal preconditions on approval of that application. Including a requirement to submit financial records to taxing authorities. So tax corporations. Either gross revenue or profits or whatever combination works best. No rights are los

                • Hint: Forming a corporation is ... blah blah blah

                  Most businesses are not corporations. If an individual citizen employs other individual citizens they are required to file the same forms as a corporation. Tax compliance has nothing to do with "incorporation".

                • by anegg ( 1390659 )

                  The government needs money in order to carry out its duties. We can argue about what those duties are, and how much money it needs, and we should, but we can't pretend it doesn't cost money.

                  If the government is going to acquire money to pay for the government, it can do so using a few different models (assuming the collection will be under the color of law, and based on some rational rules, not just tax collectors riding door-to-door taking whatever they want): a) take a percentage of money as it comes in

          • by msauve ( 701917 )

            "The right of the people to be secure in their persons, houses, papers, and effects" does not include records that document financial transactions.

            Because some bureaucrat says "records" are not "papers or effects?" Or because there's "no expectation of privacy," even though there are explicit written privacy contracts between the parties? If a court goes along with such bullshit, the King has no clothes. The end does not justify the means, and it's better than one person gets away with something than that

            • Because some bureaucrat says "records" are not "papers or effects?"

              If by "some bureaucrat" you 75% of the state legislatures and the Supreme Court of the United States, then yes.

              The end does not justify the means, and it's better than one person gets away with something than that millions have their rights violated.

              Just tell that to the IRS on April 15th when they demand your tax return. Good luck.

              • by msauve ( 701917 )
                There's a rather large difference between being required to file paperwork and the government simply taking it.
          • The IRS has greater powers because of the 16th Amendment

            - actually not because of any amendment, the IRS has its powers because the government decided it wants your money, not due to any amendments. [youtube.com]

          • Is the IRS regularly does look at lots of financial records. Lots of entities report things about you to the IRS by law. Your W-2s? The IRS already has those, your employer sent it to them. Same with 1098s, 1099s, etc. You'll notice that they say something like "This is important tax information and is being furnished to the Internal Revenue Service." That means they are sending it to the IRS, as well as you. The IRS gets told about things like the interest you earn, and interest you pay, money you make, ta

        • by Anonymous Coward

          Sounds like how NH operates for property tax purposes. You can refuse them entrance, but then they'll value your shack at a million dollars. For whatever reason NH didn't do that to me. They simply sent me a letter saying they were going to show up, but then never did. They valued my house around what it very recently had sold for. I had wanted to refuse them entry, but never got the chance. I probably was going to fold though this time. Mainly because I didn't feel like fighting such a big battle given tha

      • by j-beda ( 85386 )

        It is not that simple. The IRS request is not a subpoena, it is an an administrative demand for information. They are not (yet) investigating a crime, but ensuring tax compliance. Your rights during a tax audit are not the same as your rights in criminal court. I hope Coinbase can stop this disclosure, but I am not optimistic. If the IRS prevails, then we should expect most bitcoin transactions to move offshore.

        Perhaps, but the IRS has pretty long arms. Over the past few years they have been enforcing pretty heavy reporting requirements on financial instutions all over the world who deal with "USA Persons". They have been able to force foreign institutions to follow their rules by exterting pressure on the USA business dealings that those institutions might have. This can be a pretty powerful incentive. Many institutions deal with this by refusing to do business with any "USA Person", which can make it a royal pai

    • by Anonymous Coward

      You were modded Funny because you imply that the IRS needs to comply with laws or the Constitution.

      Are you new here? A refugee from Syria perhaps, or someplace similar with a functioning rule of law?

    • I think this was to be expected.

      Bitcoin and other electronic currencies are "property" (see e.g. https://www.irs.gov/uac/newsro... [irs.gov] )

      Now the IRS doesn't automatically monitor all bank accounts: see e.g. here: http://peopleof.oureverydaylif... [oureverydaylife.com] for

      The IRS can however, force banks, foreign exchanges, and now electronic currency exchange houses, to disclose the identity of those engaged in transactions. It can do this to any individual or corporation if they decide to audit them: see here: http://www.libr [libra.tech]

  • because there is a chance they are avoiding paying taxes on their bitcoin reserves

    What exactly is the federal tax on "bitcoin reserves"???? If you have cash money that you keep in reserve, there is no tax on it (assuming that you paid income tax on the original income). If there is actually no tax on "bitcoin reserves" as I believe, then this is an invasive fishing scam that improperly puts these bitcoin users in the position of being investigated just because they used Coinbase.

    • They are not taxing your reserves. They seem to be looking for (a) people who traded in bitcoins but didn't report the gain/loss and (b) people who sold goods/services and were paid in bitcoins but didn't report the income.
      • But the specific excuse for doing this mentioned reserves. They might as well just admit that they are on a fishing expedition.
        • But the specific excuse for doing this mentioned reserves. They might as well just admit that they are on a fishing expedition.

          The slashdot summary phrases things as "reserves". The actually court document introduction focuses on tax avoidance.
          "The IRS is responsible for monitoring ways in which United States taxpayers evade their United States tax obligations by concealing or otherwise failing to report their proper amount of taxable income and thus underpay their taxes ... In order to identify taxpayers who have may have underpaid taxes associated with transactions in virtual currency, the United States brings this ex parte proc

          • The actually court document introduction focuses on tax avoidance.

            Actually, the court document focuses on tax evasion. The difference is huge - avoidance is legal. Evasion is getting paid in cash and never reporting it. Avoidance is getting paid by your employer, and maxing your 401k

    • by reanjr ( 588767 )

      According to Intuit, profit from selling BTC is taxed like income, holding BTC which is increasing in value is taxed as capital gains, and "earning" BTC through mining is taxed as revenue which can be offset by mining costs: https://turbotax.intuit.com/ta... [intuit.com]

      • by Anonymous Coward

        holding BTC which is increasing in value is taxed as capital gains ...and like any other investment subject to taxation as capital gains, the tax isn't owed until the asset is sold and the gain is realized.

  • Morality (Score:5, Insightful)

    by Rockoon ( 1252108 ) on Friday November 18, 2016 @08:11PM (#53319175)
    The left wants to raise taxes because they think it will increase tax revenue.
    The right wants to lower taxes because they think it will increase tax revenue.

    When the hell did it become moral for a government to maximize tax revenue?

    Its down right evil.
    • by Aereus ( 1042228 )

      When the people want more services than tax revenues can provide in any given year and have ran a substantial budget deficit for well over a decade?

      • "We the people.." didn't ask for services in the constitution, and even denied the federal government to levy income tax.
        • by Anonymous Coward

          Then invent a time machine and go live before 1789.

        • by mysidia ( 191772 )

          Well... it's happened, and if you want it to stop, then a constitutional amendment will be required.

          I would suggest....

          Congress shall pass no law disbursing government-controlled money, assets, or collected taxes in the form of money, goods, or services to any person or entity, except in the form of a refund or rebate available to all citizens as a proportion to the amount of taxes collected from that person, or as necessary to support common good services beneficial to a majority of citizens and offer

    • Re: (Score:2, Insightful)

      No, what is evil is running the federal government on a $10 trillion dollar deficit over the last 7 years that future generations will have to pay for in order to buy votes with social programs like health care, welfare and food stamps.

      And to be clear, the right wants smaller, less intrusive government with minimal safety nets for those who truly have to have it. This means less taxes because the government is smaller. If that boost of 2-3% extra into the economy also increases the total economic growth r

  • Oh, right, its property now, right IRS?

    https://www.irs.gov/uac/newsro... [irs.gov]

    Because they have a mandate to manage property that is not theirs, obtained with currency.. I mean, "property" that was not created or backed by the federal reserve bank, and no matter what nation if extraction the individuals involved in the exchange of property are from, they need to perform excise on it, right?

    So, I need to declare when I give property to another person on my W2. Such as when I give a Christmas present, or give blan

    • So, I need to declare when I give property to another person on my W2.

      Well, yes, but not on the W2.

      Who pays the gift tax?
      The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement.

      What is considered a gift?
      Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return.

      What can be excluded from gifts?
      The general rule is th

  • And that that was one of the main benefits of using it? I was always confused how on earth that was supposed to work. Comforting to see that the answer is apparently "it doesn't".

    • Bitcoin is as anonymous as you want it to be.
      Exchanging it for fiat currency isn't.

    • Who said Bitcoin was anonymous? If you read the FAQ that is the third question. No one knowledgeable ever said Bitcoin was anonymous.
  • When bitcoin hit the scene years ago, I said that it was currency.

    Got a lot of flack for that.

    Then I said that as soon as it could be converted to real cash, it would be regulated.

    I was wrong on the timing, but bitcoin is going to be another Paypal.

  • Just hack into the IRS and erase their database and wipe out all records. Seeing how easily the OPM was hacked, this should not be that hard for a talented group.

    If the IRS wants to operate outside the US Constitution and Rule of Law, then they abrogate the right to any protections provided under the law and are fair game.

    Strat

  • At least as far as bitcoin is concerned.

  • I bought a few thousand Dogecoins in the last five years.

    How many dog treats do you think I owe the IRS?

  • I'm very curious as to how the incoming Republican Administration and Congress will respond to this demand for information.

  • I think this is more about the IRS looking for people who have used the exchange of bitcoin (really, the sell) of either mined cones (in which case they would likely be responsible for income tax) or profit earned on the buy/sell similar to that of stock purchases, in which case they would likely be responsible for capital gains tax.

    While I hope Coinbase is able to fight this, it's really not that much different than say Fidelity reporting your exchange activity. What is different, at least IMO, Coinbase (

  • Normally your broker would send you a 1099 on stock trades...that's fine, but now imagine your credit card sold off very small pieces of stock for every transaction. Now the IRS wants you to fill out that consolidated form 1099 with hundreds of transactions detailing everything you purchased so they can compare that to any capital gains/losses you might have made from buying the bitcoin at a higher or lower price than when you spent the coins... Ok, different example of how this is a disaster. Imagine you

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