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Bitcoin Privacy Businesses Communications Government The Almighty Buck The Internet United States

Coinbase Ordered To Report 14,355 Users To the IRS (theverge.com) 141

Nearly a year after the case was initially filed, Coinbase has been ordered to turn over identifying records for all users who have bought, sold, sent, or received more than $20,000 through their accounts in a single year. The digital asset broker estimates that 14,355 users meet the government's requirements. The Verge reports: For each account, the company has been asked to provide the IRS with the user's name, birth date, address, and taxpayer ID, along with records of all account activity and any associated account statements. The result is both a definitive link to the user's identity and a comprehensive record of everything they've done with their Coinbase account, including other accounts to which they've sent money. The order is significantly narrower than the IRS's initial request, which asked for records on every single Coinbase user over the same period. That request would also have required all communications between Coinbase and the user, a measure the judge ultimately found unnecessarily comprehensive. The government made no claim of suspicion against individual users, but instead argued that the order was justified based on the discrepancy between Coinbase users and U.S. citizens reporting Bitcoin gains to the IRS.
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Coinbase Ordered To Report 14,355 Users To the IRS

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  • by Anonymous Coward on Wednesday November 29, 2017 @08:56PM (#55647589)

    They told me cryptocurrencies were anonymous :^)

    • by Anonymous Coward

      They lied... The weak link has *always* been the exchanges and nothing will change that.

      • Almost correct.

        The weak link was when the first BTC was tied to a traditional currency.

      • They lied... The weak link has *always* been the exchanges and nothing will change that.

        Incorrect. If you earn bitcoin and spend bitcoin, you never need to exchange anything.

        • Maybe so, but the companies that deliver the products can point to the addressees and that's mostly the one spending the bitcoins.
          • So, "the weak points" are not the "exchanges", they are businesses that deliver.

            There are plenty of products and delivery options that do not involve giving out your physical address.

        • by jeremyp ( 130771 )

          Since both earning and spending involve exchanging currency for something else, your assertion seems unlikely to be true.

          • In theory, you can mine your own bitcoin and buy stuff with bitcoin and stay away from exchanges.

            In theory.

          • Since both earning and spending involve exchanging currency for something else, your assertion seems unlikely to be true.

            You do work, you get paid in Bitcoin.

            You spend Bitcoin at a store, you get products.

            Where exactly is "currency" involved, other than Bitcoin itself?

    • They are. Just like everything is anonymous until you tie a real identity to it. Do nothing but buy and sell bitcoins in bitcoins that you mined youself on websites with no identifying information about you and they'll never know who the bitcoins belong to.

    • Nobody said that. The entire point of Bitcoin is it's wide open. Every single transaction is public.
  • by LynnwoodRooster ( 966895 ) on Wednesday November 29, 2017 @08:57PM (#55647599) Journal
    Make ONE association of a transaction to an individual, and then you have ALL transactions that individual has ever made, all recorded. It won't just be a single year that can be checked, it will be all years, from any source. The fatal flaw of blockchain is that all transactions are 100% traceable, and each transaction uses an identifer that is unque - and consistent - to a single user. Crack that association once - and it's cracked for all time, past, present and future. Cash is still anonymous ...
    • and the IRS jail you for cheating on your taxes!

      • Re: (Score:3, Interesting)

        by Anonymous Coward

        and the IRS jail you for cheating on your taxes!

        That's no joke. The US Government considers cheating on taxes to be a very serious offense. In fact, the tough penalties for tax crimes are so well known that prosecutors sometimes elect to go after the tax charges, rather than other chargeable offenses, because the penalties are so much higher. There was a case in Las Vegas some years back where instead of busting a pimp for running prostitutes, which had a 2 year prison sentence, they prosecuted the guy for tax evasion because he didn't declare and pay ta

    • by chispito ( 1870390 ) on Wednesday November 29, 2017 @09:07PM (#55647643)

      The fatal flaw of blockchain is that all transactions are 100% traceable

      The whole point of the blockchain is there is a public, verifiable ledger.

    • by Time_Ngler ( 564671 ) on Wednesday November 29, 2017 @09:09PM (#55647657)

      Nope. Whenever you send any money the entire amount gets sent and the change goes to a newly created address. It's impossible to tell which address is the change and which is the actual payment, because the order in the transaction is randomized.

      • I think you are totally wrong, but I want to be sure I understand Bitcoin processing correctly first.

        Whenever you send any money the entire amount gets sent and the change goes to a newly created address.

        Just to be clear, it sounds like you're saying the following:

        In every Bitcoin transaction, the entire balance of the wallet is tendered. The financial transaction is considered complete when (1) the agreed-upon payment is given to the seller's wallet, (2) the remaining balance is returned to the buyer's wallet, and (3) cryptographic validation of this exchange has been added to the blockchain.

        If that is the case, it should be trivial for the authorities to audit the blockchain and correlate payments.

        E.g., if I have a wallet with 50 BTC and buy an ounce of a controlled substance, it should be really easy to figure out which wallet belongs to the me vs the seller because the change returned to me will be the much, much larger quantity.

        It

        • by ncc74656 ( 45571 ) *

          E.g., if I have a wallet with 50 BTC and buy an ounce of a controlled substance, it should be really easy to figure out which wallet belongs to the me vs the seller because the change returned to me will be the much, much larger quantity.

          Only if your 50 BTC happens to be in one unspent input (which, by necessity, is also at one address). If you have multiple unspent inputs that add up to your total or (better yet) if your total is spread across multiple addresses, the smallest input (or combination of inp

    • by GuB-42 ( 2483988 )

      A user doesn't have a unique identifier. A wallet has.
      A user can have many wallets and create new ones out of thin air for any transaction, in fact it is what already happens by default.

      For example, if police gets an address where a drug dealer receive payments and sees a transaction from that address to the exchange, then it can be reasoned that the guy who cashed the bitcoin is involved. But as the chain of transaction becomes longer, the connection becomes harder and harder. For example the dealer could

    • by nehumanuscrede ( 624750 ) on Wednesday November 29, 2017 @10:19PM (#55647917)

      Cash may not be as anonymous as you think.

      Larger cash transactions will most certainly attract greater scrutiny.
      You're likely to be on multiple cameras during or en-route to / from the transaction.
      Your cell phone, when GPS is running, ( your knowledge or not ) is accurate to six digits past the decimal point.
      License plate scanners will know where you were at any given time if you drive.

      This list can go on and on and on.

      Point is, we can minimize it to the best of our ability, but what we do these days is far from anonymous.

      Bitcoin and all the crypto-currencies will skyrocket in value, right up to the point where the governments get serious about it and bring in the regulation hammers. It is at that point those investing in such things will learn what the term " risk " truly means.

    • Most people are just fine with using a bank account to store money, and credit cards to purchase items where all sorts of people and agencies can review transactions.

      Why would any of those people care if transactions could be traced forever? Lots of people already sign up with bitcoin exchanges giving as much information as they would a bank.

      The only people that is a "fatal flaw" for are people who do not want anyone to review transactions, and long term they will not make up more than a small percentage o

    • by phantomfive ( 622387 ) on Wednesday November 29, 2017 @11:09PM (#55648095) Journal

      Make ONE association of a transaction to an individual, and then you have ALL transactions that individual has ever made

      You can have as many 'wallets' as you want. Some people use a different wallet for every transaction (useful for giving a different address to each customer, and then you can tell which customer paid).

    • by Anonymous Coward

      MOD PARENT UP.

      This is exactly correct. It's amazing how many users don't understand this property of the block chain. For the last time people, the master ledger of all Bitcoin transactions made by everybody for all time is completely public. Professional spies cannot maintain 100% perfect trade craft indefinitely, how much less the average Bitcoin user? Just about every Bitcoin user, either by choice or mistake, will eventually make a transaction that links their wallets to their RL identity. For this reas

    • by maztuhblastah ( 745586 ) on Thursday November 30, 2017 @02:31AM (#55648607) Journal

      Coinbase user here:

      This should not be surprising to any user for two reasons:

      1) Most of the *coins* are not anonymous. Or rather, they're not private. The ledgers are public, which means that:

      2) You're only anonymous if you *never* do anything that connects to you. And as any Coinbase user knows, you have to supply a bunch of identifying and relatively-hard-to-fake info when you sign up. So as soon as you trade on their platform(s?) you are tying your coins to the info they have on you. If you don't want to give up your privacy in exchange for the services they provide, the time to bring out the pitchforks is during signup. After you give your SSN and/or gov. ID, you can't really feign shock and horror when they supply the info to the IRS just like they warned they might in their ToS. I mean, personally I'm cool with that since I do report my cap. gains to the IRS, but yeah, if you're dodging taxes I can see how this is terrible news. But the answer isn't "hate on Coinbase", it's "pay your damn taxes." Shit, cap. gains are a joke in the US anyways... it's not gonna eat into your mad Bitcoin profits that much to pay them... And if you think it is, read on:

      3) There are anonymous ways to cash out BTC (not so sure about ETH or LTC). You'll pay a fat premium for them though, and honestly I can't think of any reason to do so aside from strict adherence to libertarian philosophies or ill-gotten gains. Personally my cryptocurrency involvement has been strictly speculation and all above-board, so I'm already de-anonymized as soon as I buy the coins. But I'll grant you if you mine them the equation might be different... if you do, I can at least see the argument for keeping your identity anonymous, if only because anonymity is a nice thing to have in general.

      But yeah, no Coinbase user should be surprised by this. They all but come out and warn you that they'll report to your country's tax agency on demand during signup. You can't be pissed when they go and do just that!

    • Make ONE association of a transaction to an individual, and then you have ALL transactions that individual has ever made, all recorded

      No, you have all transactions that particular address has ever made. An individual may have any number of addresses.

    • close...

      Make ONE association of a transaction to an individual *wallet*, and then you have ALL transactions that individual has ever made *with that wallet*, all recorded.

      FTFY

      That's why multiple wallets and remixers are important.

    • Why is not being able to dodge taxes a flaw?

    • Cash is still anonymous ...

      BTC was never anonymous. That was a myth that seems to have gained legs from people who don't understand how a blockchain works.

  • by Fly Swatter ( 30498 ) on Wednesday November 29, 2017 @09:44PM (#55647783) Homepage
    It's the IRS, lol. Those miners about to be taxed, hope they didn't spend it all - they might need some of it + penalties.
    • by perpenso ( 1613749 ) on Wednesday November 29, 2017 @10:46PM (#55648011)

      It's the IRS, lol. Those miners about to be taxed, hope they didn't spend it all - they might need some of it + penalties.

      Unless they:
      - Recorded the closing bitcoin price on the day they received mining proceeds. (basis)
      - Recorded the sale price of the bitcoins on the day(s) they sold them. (gain/loss)
      - Recorded the power consumed during mining those coins and kept their power bill. (variable cost)
      - Kept receipts for the mining hardware and the watt meter. (fixed costs)
      - Reported the basis, gain/loss and expenses (costs) on their taxes.

      If they did this they might not have any problems. :-)

      • I just claimed zero basis cost when I reported the ones I've sold, and I didn't deduct anything for power or equipment. It was all straight long term capital gains at the price I sold them for.

        I'd love to get audited. Figuring out the basis and expenses is trivial. Tedious, but trivial. It wasn't worth my time to figure it out, but if the IRS wants to send someone around to figure out how much they owe me in overpaid taxes, I'm game.

        • by dcw3 ( 649211 )

          Nah, they won't send someone around. They'll send you a letter stating that you owe them $X, unless you can prove to them otherwise, and the burden of proof is on you. Been there, done that...more than once.

        • Don't be so ready to play with them. They will likely say you owe taxes on the unsold coins if they are mining proceeds. You received an asset (virtual coins) of value for a service (mining) you provided, they are likely to call that unreported income, "bartering income" is taxable. I believe the tax liability occurs when you receive the coins, not when you spend them. But I am not a tax accountant so I am unqualified to offer a legal opinion on the matter.
      • If they mined the coins, their basis is not the closing price on the day of mining, but rather the amount they spent for electricity and the amortized cost of the hardware. I have no idea why the user should have to do any of this, though. Every other securities trading platform in the world keeps track of this stuff, reports it to the IRS, and sends the customer a consolidated statement. No idea why it would take a court order to get coinbase to do this
        • Coinbase does not know if the incoming coins are from mining proceeds, a payment for goods/services or a transfer from another wallet owned by the same individual.

          The court order is necessary because coinbase told customers it would respect their privacy. They are not a bank, not a brokerage, the IRS has ruled that bitcoin is an asset. Coinbase is under no more regulations to report than a website trading Magic The Gathering cards.
  • by slashmydots ( 2189826 ) on Wednesday November 29, 2017 @10:55PM (#55648041)
    I signed up for a Kraken and Gdax (aka Coinbase) account lately and between the two I needed a live pic of my license, pic of me holding my driver's license, my social, my full name, a scan of my license, a pic of me holding my signature, etc. They comply with the banking secrecy act or they get shut down (like Tradehill). So because I had to give them all this, I report all my income in Quickbooks at my company where I run 4 giant mining rigs. So don't just assume all of us are tax evaders as most of us are not.
    • by Puls4r ( 724907 )
      Which really begs the question - if the police require a warrant and some sort of suspicion of wrongdoing to demand privately held information like this, what gives the IRS the right to do so? Is there a banking law that says ALL YOUR INFO BELONGS TO US?
  • Not that I count much on the wisdom of markets but I am curious about the relative timing of today's jump in BTC and the news of that ruling. A Bloomberg article dated today, on bitcoins risks did not mention this.
  • Do you pay with virtual dollars?
  • All gun owners must be murderers because why else would someone need a gun
    All Italians must be affiliated with the Sicilian mafia because Sicily is part of Italy
    All beautiful women must be promiscuous because why else would they be beautiful
    All coinbase users must be tax evaders simply because ... uh ... uh ... Okay well not ALL users just the ones who bought more than $20k because that sounds like a really big number to [edited] people who are afraid of spooky numbers and computers and stuff

    • by drhamad ( 868567 )

      All coinbase users must be tax evaders simply because ... uh ... uh ... Okay well not ALL users just the ones who bought more than $20k because that sounds like a really big number to [edited] people who are afraid of spooky numbers and computers and stuff

      Actually, given the figures, that's not that unreasonable. The estimated figures say under 900 users reported bitcoin earnings from 2013-2015, during which time 14,000 users at Coinbase sold, sent or received more than $20k worth. Now, clearly not all of those users are committing tax fraud. But that's not the point of a tax probe. It's likely that enough are to make a review worth it. Transactions of that magnitude are routinely monitored in the world.

      • Re: (Score:2, Insightful)

        Actually it *is* unreasonable because the net would identify the business operators who use Coinbase to cash out to fiat every night. And it would catch investors who simply moved their bitcoins off of coinbase into mobile wallets or cold storage and still have them. No capital gains to report, but identified anyway. Though they did nothing wrong, those folks who are cleared remain on some list and somehow get a higher chance than others at being audited or detained crossing a border or something. They will

        • by dcw3 ( 649211 )

          There are already regulations requiring financial institutions to report transactions of $10k (or multiple smaller transactions adding up to more) or more. Why should this be any different? So, if your argument is that they should be able to collect that information at all, then you probably don't much care about tax evasion, and money laundering. Otherwise, your only logical argument is with respect to the figure. Too small of a number just isn't worth the IRS's time. $10 - $20k seems perfectly reason

          • There are legally-valid regulations in force on the use of *fiat* as granted by constitutional amendment. Crypto is not issued by any central bank and not controllable by any government. In short: They didn't create it, they don't own it and they don't control it.

            The Ninth Amendment says the government does not automatically get control over new things. Here we have a new thing: not currency, not stocks, not real property. I haven't heard of any recent constitutional amendments granting the govt new power.

            A

            • What we still have is a citizen who is responsible for paying taxes and a government that is constitutionally authorized to collect taxes. Since cryptocurrency has been determined to be an asset by the IRS its use seems to fall under the regulations regarding "bartering income". Sorry, cryptocurrency is not really anything new in this sense.
              • What we still have is a citizen who is responsible for paying taxes [on taxable items] and a government that is constitutionally authorized to collect taxes [within the scope of the law].

                Nope. Bitcoin/etc is definitely new, a way of storing value that can't be seized. It's better than burying gold in the back yard.

                And the fishing expedition is still illegal whether or not capital gains taxes are lawful.

                • What we still have is a citizen who is responsible for paying taxes [on taxable items]

                  and income, whether fiat or barter or bitcoin

                  Bitcoin/etc is definitely new, a way of storing value that can't be seized.

                  Actually it already has been seized. Seize a wallet and the coins are seized. The FBI seized 40% (?) of the bitcoin wallets at the Russian exchange BTC-e.

                  • > Actually it already has been seized. Seize a wallet and the coins are seized. The FBI seized 40% (?) of the bitcoin wallets at the Russian exchange BTC-e.

                    The keys in a personal wallet, on a cellphone for example. are encrypted with a PIN/passhphrase and can be backed up. So even if someone loses the phone, s/he can restore the keys on a different device.

                    • > Actually it already has been seized. Seize a wallet and the coins are seized. The FBI seized 40% (?) of the bitcoin wallets at the Russian exchange BTC-e.

                      The keys in a personal wallet, on a cellphone for example. are encrypted with a PIN/passhphrase and can be backed up. So even if someone loses the phone, s/he can restore the keys on a different device.

                      Hence the 60% not seized, but the point remains coins were seized via the wallet. Coins are also lost accidentally due to the loss of a wallet. We all know how good the average user is with their backups, and their PINs and passwords for that matter. Also when the government wants your coins they will likely get a warrant for all your computers, phones, backups, etc.

                    • can't argue with the barrel of a gun, for sure, nor should one try

  • I have never understood why the tax authorities in the US (or, indeed, almost anywhere else) should be exempt from the requirement to get a warrant.

    If the government suspects you of wrongdoing, they are supposed to present evidence to a judge, in order to get the right to invade your privacy. Yet tax authorities have direct access to your banking information, your salary, your investments - and now, of course, they want your cryptocurrency transactions. Why should they have this right?

    Sure, some people woul

  • Was the IRS only interested in transactions where dollars were exchanged? And if not, then what reference did they give to assign the dollar value of the other currency at the time the transaction occurred?
  • So basically: 1) Hoard 2) Move to a tax haven 3) Then cash out
    • or:
      Cash out in tax haven. Don't repatriate the money.
      Problem solved.

      If you were on a platform and a US resident, then open a swiss or german bank account, have the cash-out in Francs or Euros and deposited into said account.
      Declare the account on your IRS statement (required by tax code, so they can identify if you move the money into the US)
      Pay no taxes on that money as long as it's not sent into or spent in the US.

      • I'm going to strongly suggest that you run that by a tax lawyer before trying it. Corporations don't just leave money in other countries; they leave it in other corporations. Microsoft Ireland is not the same company as Microsoft in the US, so Microsoft Ireland can hold money that isn't held by anyone or any corporation in the US.

  • Government can't live without TAKING any money they think they are "owed".
    • by whitroth ( 9367 )

      You're an idiot.

      Alleged democracies, like the us, belong to "we, the people", and use our tax dollars for provide things.

      And if *you* don't want to pay taxes, then get the fuck off the highways *my* taxes paid for, don't walk on the street *my* taxes paid for, don't use city water or sewer. In fact, get the hell out of the country that *my* taxes paid for.

      And take your guns with you, to protect you against any invading army., navy, or air force.

  • If you write a check for $10k or over, the banks have to hold it for 10 days, and report it. The judge should have chosen $10k... and this should be true for ALL cryptocurrencies.

    Cryptocurrencies: avoid paying taxes (and stick the rest of us with your damn taxes), and helping crime (ransomware? money laundering anyone?)

  • This article just made me go check my coinbase account. Of course i did $20,080 worth of transactions and the worst part is the coins I transferred in Coinbase assigned a cost basis of $2-5 for some reason...God I wish I had purchased .5 bitcoins for $2.38. Now it looks like I have almost $15,000 in capital gains. Wonderful.
    • You don't have capital gains until you cash out or spend the coins. Right now it seems an unrealized gain on paper.

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