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Bitcoin The Courts Crime Government Software The Almighty Buck United States Technology

Bitcoin Exchange Ordered To Give IRS Years of Data On Millions of Users (gizmodo.com) 203

Last month, instead of asking for data relating to specific individuals suspected of a crime, the Internal Revenue Service (IRS) demanded America's largest Bitcoin service, 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. On Wednesday, a federal judge authorized a summons requiring Coinbase to provide the IRS with those records. Gizmodo reports: Covering the identities and transaction histories of millions of customers, the request is believed to be the largest single attempt to identify tax evaders using virtual currency to date. As a so-called "John Doe" summons, the document targets a particular group or class of taxpayers -- rather than individuals -- the agency has a "reasonable basis" to believe may have broken the law. According to The New York Times, the IRS argued that two cases of tax evasion involving Coinbase combined with Bitcoin's "relatively high level of anonymity" serve as that basis. "There is no allegation in this suit that Coinbase has engaged in any wrongdoing in connection with its virtual currency exchange business," said the Justice Department on Wednesday. "Rather, the IRS uses John Doe summonses to obtain information about possible violations of internal revenue laws by individuals whose identities are unknown." In a statement, Coinbase vowed to fight the summons, which the company's head counsel has previously characterized as a "every, very broad" fishing expedition.
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Bitcoin Exchange Ordered To Give IRS Years of Data On Millions of Users

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  • by harvey the nerd ( 582806 ) on Thursday December 01, 2016 @03:38PM (#53403903)
    Prison Planet, USA.
  • Are we there yet? (Score:5, Insightful)

    by avandesande ( 143899 ) on Thursday December 01, 2016 @03:41PM (#53403921) Journal
    What is the difference between this and the IRS asking for banks to release 3 years of all of its customers records, because cash is anonymous?
    • Re:Are we there yet? (Score:5, Informative)

      by Anonymous Coward on Thursday December 01, 2016 @03:50PM (#53403985)

      Because Bitcoin is not a currency according to previous legal rulings and the IRS seems to be treating it however would advantage them in any given instance. I would assume that holding on to bitcoin then qualifies for capital gains if sold later at a profit.

      • Re:Are we there yet? (Score:5, Informative)

        by deadwill69 ( 1683700 ) on Thursday December 01, 2016 @04:46PM (#53404361)

        You seem to have most of it right:

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

        In some environments, virtual currency operates like “real” currency -- i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance -- but it does not have legal tender status in any jurisdiction.

        The notice provides that virtual currency is treated as property for U.S. federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency. Among other things, this means that:

                Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
                Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply. Normally, payers must issue Form 1099.
                The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
                A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

      • Re:Are we there yet? (Score:4, Informative)

        by Anonymous Coward on Thursday December 01, 2016 @04:59PM (#53404451)

        The IRS will always figure out how to get their money. Look at all the cannabis dispensaries in the states where it's "legal" (it's not really legal because the states really don't have the right or authority to make it legal since it's illegal at the Federal level). Few, if any, of those businesses have a bank account because at the Federal level cannabis is still a class 1 narcotic and banks will not touch these businesses. So they deal in cash most of the time, can't even process credit cards either due to not having a bank account.

        Yet, the IRS (a Federal agency) has created rules for them to be able to report income and pay their taxes. So even though the banks won't touch them for fear of the Feds coming after them the IRS has no problem collecting money from something deemed "illegal" at the Federal level.

        It won't matter if you decide to make dirt your currency and you have a group of friends who trade dirt for products or services. If the IRS catches wind and finds out, THEY will figure out what you owe them and you'll have to fight them on what they decide. Same goes for bartering schemes. You cannot trade a service or product and not pay taxes on what you receive. That is if you're following the rules/laws, which in those instances I doubt you'll find more than a few dozen Americans, who also all happen to be accountants, who report this sort of stuff on their personal taxes.

        • Yet, the IRS (a Federal agency) has created rules for them to be able to report income and pay their taxes.

          The overriding rule of the IRS is income (or revenue in this case) is defined as money derived from any source [irs.gov], unless explicitly exempted by law. As said just below you, the IRS makes no differentiation between money made by some guy working in a cube or the drug dealer on the corner. So long as both report how much money they brought in, and pay taxes on that money, the IRS is satisfied.

          An
    • Agreed. I am surprised that they don't go after any exchange that transacts more than 6 figures. It would be a high risk, medium return situation. Well worth the resources expended.

      • by lxs ( 131946 )

        Most crypto exchanges are located outside of the US. "They" have no jurisdiction there.

        • True, I only meant US based entities. But just because a financial institution is not in the US doesn't mean it is out of reach. Many countries in the EU, Australia, Canada, India, etc actually have similar organizations that ask for reporting. They also network and provide this information to each other.

          • by lxs ( 131946 )

            Oh I know about the US acting across borders.
            I had to sign a form from my bank saying that I'm not a US citizen, and have no financial ties to the US just to keep my account. Complying with US financial law on top of local laws is simply too much of a hassle for most non-US banks.

            This is a new thing so it stands to reason that they try it out locally before making the rest of the world miserable. Besides, after the Snowden leaks and a successful challenge to the Safe Harbor agreement, the EU for one is a lo

            • Germany, UK, France, and even Switzerland have been sharing financial information with the US (and vice verse) for over a decade. The US has been recording all global SWIFT transactions for well over 2 decades. Most banks that span across countries and participate in the SWIFT system already provide this information. Even from countries such as India, and Singapore.

              If you are not a US citizen, the other members don't actively report on you but will upon request. It's not just a US thing. Germany/India/C

        • by dbIII ( 701233 )

          Most crypto exchanges are located outside of the US. "They" have no jurisdiction there.

          Have you heard of FIFA?

          • Also: Julian Assange, Kim Dotcom, and more than a few others. The government's habit of exporting and enforcing our laws beyond our own borders (Not that we're alone. France is fairly notorious for the same.) is one of the more troublesome... outright despicable even... habits of washington dc.

            • Washington DC? They don't even have Senators or a voting House member. It's the people that the rest of the country send to DC.

      • > Agreed. I am surprised that they don't go after any exchange that transacts more than 6 figures.

        Coinbase, in fact, does run a bitcoin exchange, which traded $96.6 million USD worth in the last 30 days:

        https://bitcoincharts.com/mark... [bitcoincharts.com]

    • What is the difference between this and the IRS asking for banks to release 3 years of all of its customers records, because cash is anonymous?

      And there are people here who want to get rid of cash.

    • What is the difference between this and the IRS asking for banks to release 3 years of all of its customers records, because cash is anonymous?

      The difference is that the IRS defines bitcoin as being property. [irs.gov]

    • Well.. can the IRS prove much if you are shoving money into and out of these accounts? All the actual bitcoin transactions I presume are beyond their knowledge, they will only find out the interface with real money, when you deposit and take out. Unless are claiming to be dirt poor with unexplained millions sloshing about this probably won't affect you.

      • by mysidia ( 191772 )

        They'll find out your Wallet addresses for Bitcoin. Then they'll start identifying Coinbase customers and initiating Audits where the customers will be required to prove their innocence or be presumed guilty.

    • by MikeKD ( 549924 )
      Because bitcoin is not anonymous [bitcoin.org]?
    • The IRS needs to seek new avenues to fleece the populace now that it's about to be pried out of the middle of 17.5% of the US GDP (healthcare industry).

      Abolish most of the IRS and all the parasites that feed off the ridiculous and intentionally complex tax code. A flat tax plus perhaps a consumption tax would allow most Americans to do their taxes on a post card. Of course, millions of tax accountants and attorneys would then need to find honest work, but that's a small price to pay for complete transpare

  • This is why.... (Score:5, Interesting)

    by LaoTzePhuuk ( 132704 ) on Thursday December 01, 2016 @03:44PM (#53403943)

    ....cash should be used whenever possible.

    • Until it is outlawed [zerohedge.com] or becomes too heavy to carry! [zerohedge.com]
      • > Until it is outlawed

        India declared the 500 and 1,000 Rupee notes invalid. At current exchange rates that US $7.33 and $14.65. Imagine the chaos in the uSA, if all paper currency worth more than a $5 bill was declared invalid.

    • This is why ...cash should be used whenever possible.

      so you can cheat on your taxes?

      Whats all the love for tax cheats in america? In canada, its mostly immigrants who use all cash to specifically avoid paying taxes. I say lock em up! they are defrauding our society for their own gains.

      • I say lock up everybody who pays taxes to the government instead of avoiding and evading all taxes. The people paying taxes are directly responsible for the government oppression being perpetrated against individuals, groups, all the war and economic crimes. Governments are the culprit marauders, destroying individual rights and all must be judged and executed AFAIC.

  • by jxander ( 2605655 ) on Thursday December 01, 2016 @03:48PM (#53403975)

    As soon as Bitcoin entered common parlance, this became the obvious endgame.

    As soon as you could purchase normal day-to-day goods, it became inevitable.

    And as much as it sucks ... they're right. Using crypto currency does avoid taxes, even if that isn't the primary intent.

    I just wish they'd found a better way to address the issue. A mass subpoena is rather inelegant, and will cause a lot of pushback.

    • being bitcoin has no tax to avoid i dont see them winning this in any tax court.
      • by PRMan ( 959735 )
        Capital gains based on purchase and sale points.
      • by msauve ( 701917 )
        Aside from the legality of such a broad fishing expedition, Bitcoin is considered an asset, so anyone who "buys low/sells high" would be subject to capital gains tax.
        • I'm not sure I agree with the fishing part. My brokerage reports all sales to the IRS every year without even a polite request. As you say, it is an asset, so just like my stock trades are reported, wouldn't bitcoin transaction be subject to the same requirements?
          • by msauve ( 701917 )
            Asset != security. AFAIK, Bitcoin exchanges fall under neither banking nor broker reporting requirements. Bitcoin is more like going down to the local coin dealer and buying gold Maple Leafs with cash - no reporting required.
            • I think it could be argued that a bitcoin is more like a stock share than a maple leaf. The bitcoin has no physical embodiment, which is more like shares of a company, whereas the maple leaf is a real physical object. I expect the IRS will move it that direction and make bitcoin reporting like brokerage reporting.

              • by msauve ( 701917 )
                No. A stock or bond is merely a representation of ownership, so it's a matter of trust. With Bitcoin, you verifiably hold the actual item, just like gold.
          • by mysidia ( 191772 )

            My brokerage reports all sales to the IRS every year without even a polite request.

            ONLY because there's a law saying what your brokerage has to report.
            This is legislative action by congress that has decided that the sales proceeds have to be reported, which is done for income tax purposes.
            I believe the same already likely applies to Coinbase, if you sell over some threshold and receive US dollars, then Coinbase likely has to 1099B you.

            Note your broker doesn't share ALL your records with the IRS. For ex

            • Not true anymore, brokers now share basis on most transactions, granted the sharing is done at sale. Previously the IRS "trusted" you to report an accurate basis.

              • by mysidia ( 191772 )

                That's not the same as reporting purchases to the IRS.

                Potentially I could go to my broker, tell him I want to withdraw 100 shares of T or X.

                This gets me stock certificates issued, which does not generate any 1099 forms.
                I could then take my stock certificates, Sign the back, endorse some of them over to you,
                and donate some others to a charity, then you go and deposit the shares into your account.

                The company then has no idea:
                1. (For tax purposes) which of my shares have sold to you. Many of the shares

    • by geekmux ( 1040042 ) on Thursday December 01, 2016 @04:42PM (#53404331)

      As soon as Bitcoin entered common parlance, this became the obvious endgame.

      As soon as you could purchase normal day-to-day goods, it became inevitable.

      And as much as it sucks ... they're right. Using crypto currency does avoid taxes, even if that isn't the primary intent.

      Replace bitcoin with gold in the above statement.

      Humans have been using alternatives to taxable currency for a very long time in exchange for goods and services. Mining it out of the earth vs. mining it out of a machine; I fail to see a difference here, and tends to question the tax argument.

      Meanwhile, in Ireland, trillions sit quietly...funny how that shit works, ain't it?

  • Serious question here.... I thought bitcoin was pretty anonymous when all is said and done, so how would they know which wallets belonged to Americans as opposed to people from other countries?
    • by Anonymous Coward on Thursday December 01, 2016 @04:09PM (#53404119)

      The premise of your question is flawed. BitCoin transactions are NOT anonymous, they are actually tracked *forever* in the block chains which are public records. What's supposed to protect you is that your wallet (a set of Crypto Keys actually) is used to identify parties in a transaction. Where it may not be easy to match the wallet to the person (or entity) making the transaction, but once you do, you can find EVERY transaction made by that wallet from public information.

      Those trading BitCoin (which is something impossible to physically trade) must do so electronically, which means you have to use some kind of exchange at some point in order to obtain something of value for your BitCoin (i.e. trade it for something else). It's these conversion transactions where the anonymous nature of those Coins really isn't so safe and one's identity can be revealed. Once you are identified as the owner of a wallet, then everything you've done falls out of the public record in the block chains.

    • Serious question here.... I thought bitcoin was pretty anonymous when all is said and done, so how would they know which wallets belonged to Americans as opposed to people from other countries?

      Coinbase requires your personal information top open an account with them. Even if you use a foreign address the IRS can still lookup your name and birthdate in the Social Security database. The purpose of an exchange is to be able to convert bitcoin to other currencies and vice-versa and unless you are handing someone cash for the transfer of bitcoins, there will always be a identifiable record of a electronic transaction going through bank accounts or credits cards. Security (or anonymity) is only as good

    • You find it is true of most nations, actually. If you are playing with finances in their borders, their tax agencies get to have a look at what is going on. Doesn't matter if you are a citizen or not. There can be tax implications even if you are't a citizen but regardless they want to see what is going on.

      I mean look at the FIFA guys who got brought down by the US: It happened because they were doing shit with US currency and US banking. That is why the US took an interest and has legal standing.

  • Non Issue (Score:3, Interesting)

    by Trachman ( 3499895 ) on Thursday December 01, 2016 @04:06PM (#53404095) Journal

    If somebody had bitcoins, was smart to keep a blockchain in his own computer, and apply some common sense, this is not an issue.

    If somebody opened account, provided name other information, then had to realize that their custodian is merely another type of bank, and all of the transactions will be subject to the scrutiny. Just like the regular old fashioned bank.

    This is merely a way to scare bitcoin users.

    Those who understand bitcoin have enough brain to maintain their anonymity.

    • by PRMan ( 959735 )
      Buying or selling large amounts of bitcoin quickly enough to catch certain price points is very hard if you are selling them by hand for cash...
    • Re: (Score:3, Insightful)

      by Yunzil ( 181064 )

      Those who understand bitcoin have enough brain to maintain their anonymity.

      If they had even more of a brain, they wouldn't have bothered with bitcoin in the first place.

  • Doesn't Make Sense (Score:2, Insightful)

    by organgtool ( 966989 )
    Why would anyone use BitCoin for tax evasion when they could just incorporate and use the many legal tax loopholes that the government refuses to close?
  • Confused (Score:4, Interesting)

    by HuskyDog ( 143220 ) on Thursday December 01, 2016 @04:17PM (#53404177) Homepage
    It is very likely that I don't understand enough about Bitcoin!

    Question 1: Why would anyone who thought that they might not be paying all their US taxes use an exchange based in the USA? Is it something to do with needing to convert the Bitcoins to Dollars so that you can actually spend them?

    Question 2: Given that one of the main selling points of Bitcoin is anonymity, why would someone operating an exchange keep any but the barest records? I appreciate that they can't destroy the information now they have been asked for it, but I am trying to grasp why they would put themselves at risk of being in that position by retaining it in the first place?
    • by PRMan ( 959735 )

      1. The standard answer on the Bitcoin forums was that they "didn't need to pay taxes. You're a moron if you do." Of course, this was against the tax advice of the IRS, which was to declare them with buying and selling dates as Capital Gains.

      2. Well, Coinbase was happy to hold your bitcoins for you and provide an easy way to buy and sell, but then they held your account hostage and demanded more and more information to get your assets back.

    • As you say, if you were doing serious tax evasion you'd be stupid to use a US based exchange. But some people are stupid, thus the IRS is poking their head in.

    • by tlhIngan ( 30335 )

      Question 1: Why would anyone who thought that they might not be paying all their US taxes use an exchange based in the USA? Is it something to do with needing to convert the Bitcoins to Dollars so that you can actually spend them?

      Question 2: Given that one of the main selling points of Bitcoin is anonymity, why would someone operating an exchange keep any but the barest records? I appreciate that they can't destroy the information now they have been asked for it, but I am trying to grasp why they would put

  • There is no definition of income in the constitution, and there are a bunch of convoluted court rulings on income taxation. (It's not all that comes in.) This move by the IRS is (as I believe) to be unprecedented. It is effectively assuming that any american who traded bitcoin was evading the income tax without any evidence thereof. This presupposition of guilt is what makes it newsworthy. Anyone who traded btc is assumed to have evaded the tax, even though self-reporting is the obligation of the taxpayer a

    • by PRMan ( 959735 )
      Even easier, Coinbase has records of buys and sells, along with your name, address, bank account and SSN. Makes catching people really easy without blockchain tools, which would be much harder.
    • Depends on how it's used:
      https://www.irs.gov/uac/newsro... [irs.gov]

      The notice provides that virtual currency is treated as property for U.S. federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency. Among other things, this means that:

      Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll t

    • by mysidia ( 191772 )


      unlike a standard stock broker, a 1099-B would not be issued by coinbase automatically.

      If you move more than 200 transactions or $20k in Cash or Bitcoin through your account in
      a Calendar year, then Coinbase issues you a 1099-K. Even if you're just moving your funds
      from one account to another.

      So there definitely will be reports to the IRS if you move significant capital around.

    • There is no definition of income in the constitution, and there are a bunch of convoluted court rulings on income taxation. (It's not all that comes in.) This move by the IRS is (as I believe) to be unprecedented. It is effectively assuming that any american who traded bitcoin was evading the income tax without any evidence thereof. This presupposition of guilt is what makes it newsworthy. Anyone who traded btc is assumed to have evaded the tax, even though self-reporting is the obligation of the taxpayer always applies.

      "You are all guilty unless you can prove to our satisfaction that you've not broken any laws."

      Yeah, nothing at all for anyone to be concerned about.

      What could possibly go wrong?

      Strat

  • Isn't this a duplicate of https://yro.slashdot.org/story... [slashdot.org] ? The other one was even posted by BeauHD as well.

    • No, not a duplicate but an update. The post you linked from Nov. 18 was actually included in this story (2nd link). Today's post says "On Wednesday, a federal judge authorized a summons requiring Coinbase to provide the IRS with those records."
  • Blanket Warrant (Score:5, Insightful)

    by DERoss ( 1919496 ) on Thursday December 01, 2016 @06:08PM (#53404803)

    The basic issue is not about bitcoin. It is about the scope of warrants, summonses, and subpoenas. The Fourth Amendment to the U.S. Constitution states:
    > The right of the people to be secure in their persons, houses,
    > papers, and effects, against unreasonable searches and seizures,
    > shall not be violated, and no Warrants shall issue, but upon probable
    > cause, supported by Oath or affirmation, and particularly describing
    > the place to be searched, and the persons or things to be seized.

    I doubt there is "probable cause" that tax evasion has indeed been committed by Coinbase's users. Such a broad summons fails to describe which persons' accounts are to be examined. Since the summons was served on Coinbase, which has not been suspected of a crime, a challenge of the summons to appeals courts or the US Supreme Court might be very successful.

  • I see that the IRS is eager to tax those who profited off of Bitcoin. Will they be retroactively reducing taxes and issuing refunds for everyone who took a loss on it as well? Only seems fair.
    • It is on the taxpayer to show all income and losses. If the IRS sees a person cashing out a bunch of bitcoin and not reporting the income they are going to audit the person.

      Not saying I approve of them doing this but that is what's going to happen. A lot of butts are puckered pretty tight after reading this news.

    • by emt377 ( 610337 )
      They will likely require reporting of capital gains or loss. Either way the IRS requires it to be reported and as far as I can tell reporting capital loss isn't optional. There's no lower limit, like with hobby income or such, so if you lost 10 cents net on trading BC you have to pony up for the CPA to supplement your filing for that year to report your capital loss. And yes, given the general trend of BC there will be more losses than gains reported, and the IRS will end up refunding more than it collec
  • by Applehu Akbar ( 2968043 ) on Thursday December 01, 2016 @07:26PM (#53405283)

    When the IRS or any other agency wants discovery of evidence in a case, it should be demonstrating interest in a specific person, partnership or corporation being investigated. The whole idea of John Doe warrants is an unconstitutional fishing expedition. Let's hope that now we'll get some new Supreme Court appointees who don't rubberstamp the government's every whim.

    • by Xyrus ( 755017 )

      When the IRS or any other agency wants discovery of evidence in a case, it should be demonstrating interest in a specific person, partnership or corporation being investigated. The whole idea of John Doe warrants is an unconstitutional fishing expedition. Let's hope that now we'll get some new Supreme Court appointees who don't rubberstamp the government's every whim.

      You do know who was elected right? You're aware of the types of people he's filling his cabinet with and listening to?

      The same person who tweeted flag burners should be thrown in prison and have their citizenship strip is the same person who will be sitting in the Oval Office. If you think for one second someone like Trump, his cronies, or pretty much anyone in the alt-right gives one shit about your privacy and warrant limitations then you are going to be in for some eye opening surprises over the next fou

  • Since I bought 0.1 Bitcoin (long since used) just to be sure I had an easy way to buy Bitcoin in case I needed to do so for someone hit by ransomware but with no backups.

    I hope the IRS doesn't come after me for taxes on my approximate increase from $31 to ~$41 that I used on domain renewals. Oh, and the $1.11 worth still in my account.

"I've seen the forgeries I've sent out." -- John F. Haugh II (jfh@rpp386.Dallas.TX.US), about forging net news articles

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