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Coinbase: We Will Send Data On 13,000 Users To IRS (arstechnica.com) 133

Posted by BeauHD from the hand-it-over dept.
Coinbase has formally notified its customers that it will be complying with a court order and handing over the user data for about 13,000 of its customers to the Internal Revenue Service. Ars Technica reports: The case began back in November 2016 when the IRS went to a federal judge in San Francisco to enforce an initial order that would have required the company to hand over the data of all users who transacted on the site between 2013 and 2015 as part of a tax evasion investigation. Coinbase resisted the IRS' request in court. But by November 2017, after a hearing, U.S. Magistrate Judge Jacqueline Scott Corley narrowed the request to only cover 13,000 particular individuals. The San Francisco-based startup is now required to provide "taxpayer ID, name, birth date, address, and historical transaction records for certain higher-transacting customers during the 2013-2015 period." Coinbase reminded its users that it is "unable to provide legal or tax advice." The company also noted, "If you have concerns about this, we encourage you to seek legal advice from an attorney promptly. Coinbase expects to produce the information covered by the court's order within 21 days."
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Coinbase: We Will Send Data On 13,000 Users To IRS More

Coinbase: We Will Send Data On 13,000 Users To IRS

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  • Uh-oh (Score:3, Insightful)

    by DogDude ( 805747 ) on Monday February 26, 2018 @09:12PM (#56191929)
    Uh-oh. I think that some dumb people are going to be in a lot of trouble.
  • What did you expect? Just declare the income (it's probably long-term cap gains anyway), pay your taxes, and move on. Don't mess with the IRS; government moves pretty slowly on most things, but it's going to get paid right now.

    • Re: (Score:2)

      by pezpunk ( 205653 )

      as a crypto miner ... i agree. i plan to pay every cent i owe (and even after taxes i've had a great year :) )

      • as a crypto miner ... i agree. i plan to pay every cent i owe (and even after taxes i've had a great year :) )

        ...and are you deducting your mining gear and electricity/cooling costs?

        • Re: (Score:2)

          by pezpunk ( 205653 )

          yep, although cooling costs were merely an open window, and electricity costs were a lot less than you'd think.

          also depreciating the hardware.

          • Have you found any good resources/guidance on doing that? Most I've been able to come up with so far is "nobody really knows".

  • You don't have to pay taxes on it until you convert it back out of crypto-currency. I think a lot of people will hold onto it until they can cash out at a lower tax rate (either in retirement or by moving to a lower tax locale).

    • Re: (Score:2)

      by PPH ( 736903 )

      Or you could just buy stuff with it.

    • Re: (Score:1)

      by Anonymous Coward

      Wrong. Trading crypto for other crypto is a taxable event.

      • Re:This may cause the price of it to go up (Score:4, Interesting)

        by aaarrrgggh ( 9205 ) on Monday February 26, 2018 @11:30PM (#56192329)

        Honest question... are you sure? Normally that kind of transaction (like an option) would just track as basis changes if done properly.

        • Re: (Score:3)

          by Kaenneth ( 82978 )

          It was vague, but a new law was passed that as of Jan 1 2018, it's clarified to always be a taxable event. (thanks Trump for raising taxes!)

          • Re: (Score:2)

            by Cederic ( 9623 )

            That's got to be bloody confusing. How does it work? Treat it as at taxable sale at the market price followed by a subsequent new investment?

            Going to be a lot of people fucked if that's the case.

            • Re: (Score:2)

              by bondsbw ( 888959 )

              Quick summary:

              You get taxed on the gains, and the tax rate depends on whether the crypto you sell has been held for at least one year. If so it falls into long-term capital gains (low tax rate), otherwise it falls into short-term (ordinary income tax rate).

              Form 8949 [irs.gov] is useful from there. It asks for details of each transaction, including the value of that trade in dollars at that time, so day traders are going to have a lot to report. But the sum total is what determines what you get taxed on. You can u

        • Re: (Score:2)

          by hoggoth ( 414195 )

          Bitcoin to Bitcoin on a different exchange or to a wallet is a non-taxable transfer. Bitcoin to Ethereum is a taxable event, as different coins are not like-kind exchanges.

    • Re: (Score:2)

      by gweihir ( 88907 )

      And that is untrue in most countries. You have to pay property-taxes for the value it represents and for that you have to report where you store it and how much it is and possibly have to prove that as well.

      • Re: (Score:2)

        by bws111 ( 1216812 )

        You're an expert in taxes in most countries? Impressive. Anyway, this article is about the IRS, which means US federal tax. There is no US federal property tax. Property tax in the US is at the local level, and generally only includes real property.

      • Re: (Score:2)

        by xvan ( 2935999 )
        That's not always the case, say you're a farmer. You purchased a cheap piece of land.
        The land gets revaluation, but you are a farmer, you are not in the real state business, why should you pay rising property-taxes for the value the market assigns to my property?
        The same logic applies to stock.

        • In my state, it is called an ag exemption and as long as you work the land, it is valued as farm land. I have known people to keep one cow to lower their prop taxes.

    • Re: (Score:2)

      by Cederic ( 9623 )

      I'd suggest confirming with your local tax authorities. My interpretation matches yours but I'd call HMRC and ask them for the legal interpretation here in the UK before completing my tax return.

      • Can you send some of those HMRC agents that will pick up the phone and answer questions about taxes to the IRS?

  • "Trusted third parties ... (Score:3)

    by bill_mcgonigle ( 4333 ) * on Monday February 26, 2018 @09:29PM (#56191991) Homepage Journal

    ... are a security vulnerability." - Nick Szabo.

    Usable decentralized exchanges are almost here.

    • Re: (Score:2)

      by gweihir ( 88907 )

      Indeed. The definition of "trusted" is "can break my security". A decentralized exchange will not do it, however. You need a cryptocurrency that has strong anonymity built in (Bitcoin, for example, has none) and you need to only use your own wallet and never give it away.

  • Shouldn't they need to have probably cause to pull the data from all 13k users?

    • Shouldn't they need to have probably cause to pull the data from all 13k users?

      Hahaha - good one.

    • Re: (Score:2)

      by bws111 ( 1216812 )

      Start reading the hearing transcript on page 6 line 18.

      • the Coinbase guy seems to be making a valid argument and getting bitch slapped by the judge because he (she?) isn't a very good lawyer.

    • Nope. Financial transaction information needs to get reported to the IRS. But that's the policy reason. The legal reasoning goes something like: Coinbase doesn't have a 4th amendment right not to turn the information over, and you turned it over to coinbase voluntarily.

    • Re: (Score:2)

      by gweihir ( 88907 )

      No. That is regular data-transfer from financial institutions to the IRS (or equivalent). All banks already do this and Coinbase and the like are increasingly regarded banks. What, you though your bank-statement was _private_? Dream on.

  • I'm NOT a Luddite, but... Which of course means I'm about to say something that will require a lot of clarification to avoid that accusation, eh?

    I'm dubious that there is a legitimate need for cryptocurrency. I am NOT rejecting the broader idea of electronic currency. Apart from the convenience, which has some legitimate (though usually overrated) value, the special (narrow) thing about cryptocurrencies is the extra privacy that some people want. If using cryptocurrency makes you MORE vulnerable to intrusio

    • You have to consider this from a non-first world point of view. How would you like to have had your money tied up in Zimbabwe dollars when the inflation rate hit 1,000,000 percent? Many places in the world either to do not have trusted third parties for exchange or the price is exorbitant for the regular person. Cryptocurrency is a possible solution for these people.

      • Re: (Score:2)

        by shanen ( 462549 )

        Either you are incredibly naive or you want to help scammers take advantage of the technological ignorance of extremely poor people. I rather doubt you're an actual criminal, however. No sense in trying to rob someone who has nothing or the next closest thing. Like Willie Sutton said when asked why he robs banks: "Because that's where the money is." I think you're just naive.

        From the point of view of someone in an extremely impoverished and undeveloped country, the most important thing would be converting s

      • Can't speak to Zimbabwe, but in many countries, the solution is to hold savings in USD. You just keep spending money in local currency (sometimes you just use USD for everything, like Cambodia).

        The real value is having money in a "banking system" outside your home country, but the crackdowns seem to be limiting that option for the exchanges at least.

        • Can't speak to Zimbabwe, but in many countries, the solution is to hold savings in USD. You just keep spending money in local currency (sometimes you just use USD for everything, like Cambodia).

          The real value is having money in a "banking system" outside your home country, but the crackdowns seem to be limiting that option for the exchanges at least.

          Why would I want to hold a currency that US can print and manipulate, why should I tie my fate with an war mongering country that (probably) cares only for itself and spies on its own citizen?

          • Because it is more practical than carrying around or storing a commodity. Hell, a good portion of the bills in Cambodia were fake, but still honored locally. Besides... who is to say that a crypto currency is any better on ideological grounds?

            • Funny you mention carrying around and storing things, I find it safer to keep my money in bitcoin, I can transfer it to any part of the world, as an Indian it is easier for my to get my hands on bitcoin than USD. Yes, other economies linked to USD does scare me, but lets not talk about it :)

    • > I'm dubious that there is a legitimate need for cryptocurrency.

      Most likely this means you know very little about how money works, and how the technology we use to track value has stagnated.

      Remember when mr stoll wrote his famous essay about how there could be no possible application of the internet, since daily newspapers, TV, and the local stores did everything better ?

      Thats where you are now.

      • Re: (Score:2)

        by shanen ( 462549 )

        There was no substance to your comment. Not even an educational or theoretical reference. Not much room for any substantive response, eh?

        I actually believe, though you didn't ask for any clarification, that conventional economics is horribly broken. I even have a theoretical basis for that position. It has to do with the real value of time versus the fake value of money. Including cryptocurrency. Perhaps asking some question would reveal more than you care to about your attention span or your reading compre

  • I didn't use coinbase in that period of time but I now would just about fit into their parameter of minimum money transacted because of my large mining operation. Instead of just adding a separate line item on my taxes for a 1099-MISC or INT or whatever, I wrap it into my LLC's income because Nicehash mining is technically selling as service, not capital gains from creating spontaneous currency. But they would almost definitely audit me if I was in this list, which would be a needless hassle and it'd be bas

    • Re: (Score:1)

      by Anonymous Coward

      The IRS can audit you for any or no reason. They don't need evidence of anything to do so. In fact, they do some random compliance audits of returns they have no suspicion of having any defects -- this is to calibrate their systems/processes as well as to look for what sort of innocent mistakes people are making on their taxes.

      I know a small retail business (mom, pop, and one employee) that apparently got picked for one of these. The IRS did an "on site" audit and was there for two weeks looking at every li

    • As long as the wrapping it into the LLC is not done for the purposes of tax evasion you come out fine in the end.

      Back in ~2007 my taxes were a complete mess-- I had a convoluted business go tits up, capital gains that didn't come close to matching my broker's records, and a new business show a big profit. I did my best to try to sort things out with turbo tax, but the return was so painful it almost brought me to tears. The actual return was nearly 200 pages, mostly for pages that didn't matter for the fi

    • What the IRS really needs is evidence and they have none. They better not waste my time with this BS in later years.

      The whole point of the demand for details is to check if their is evidence of tax evasion. The IRS can audit anyone at anytime, they don't need evidence, the audit is to determine if there is evidence.

  • Not a surprise at all (Score:5, Insightful)

    by gweihir ( 88907 ) on Tuesday February 27, 2018 @01:43AM (#56192623)

    Banks already have to do this to fight "money laundering" and "financing terrorism" (in actual reality, this is purely about tax evasion...) and companies like Coinbase are in some sense banks. They have no chance to deny such a request and, unless the cryptocurrency in question has strong anonymity (like Monero) and you are always strongly anonymized when accessing it or use your own wallet exclusively, there is no way the feds will not identify you eventually.

    I am beginning to think that all this hype could have been about (really stupid, but rich) people trying to evade taxes and that the speculation angle actually is kind of a side-show.

  • 1) Why would Coinbase need to collect things like dates of birth or physical addresses in the first place?

    2) What motivation would anyone have to provide the correct details even if they did ask?

    3) Why would anyone doing something dodgy use a coin exchange in their own country?
    • Simple: greed and stupidity.

    • For your first question, this is actually an obligation for all payment institutions and banks. There is a legal obligation to collect information on the client (Know Your Client/Know Your Business). Once a certain threshold in transactions value is crossed, that information needs to be validated and additional information needs to be collected (proof of ID, proof of address). There is also an obligation to run the collected data against sanction lists on a regular basis (daily/weekly, depending on risk exp

    • Re: (Score:2)

      by grnbrg ( 140964 )

      1) Know Your Customer laws designed to fight money laundering. Try opening a bank account, or getting a credit card without providing DOB and address information.

      2) If you don't provide the verification details, you aren't allowed to use the service. (And Coinbase is no different than any other reputable exchange. Unless you're doing in-person trades, you can expect to be uploading scans of your drivers license and/or utility bills.)

      3) Exchanges tend to have fiat transfer options only for the countries t

      • OK, so Coinbase is like a bank. We have just the same rules for having to hand over numerous personal details when you open a bank account in the UK.

        BUT, if it is like a bank then why is it any sort of story at all that they are required to hand over said customer details to the IRS? Surely all banks and similar institutions have to do that all the time anyway as part of their license. Here in the UK I have always taken it for granted that my bank sends all my personal and financial details to the In
  • As a currency exchange, wouldn't they already have to report transactions to the IRS?
  • Or likely will be in Canada. I've always known that the exchange where I put my CAD in and take it out was reporting to Revenue Canada. I'm pretty sure most people with a large amount of crypto currency now it and are expecting to eventually be taxed. Now I also know enough people with enough money to make it worth their while to move somewhere with a lower tax rate when they do take the money out. Also most people with a large amount of crypto currency are holding it in wallets and multi exchanges.
  • We've been slashing the IRS staffing so dramatically in recent years that it is rather unlikely anything would be done with that information.

  • Coinbase is based in San Francisco (Score:4, Insightful)

    by Kernel Kurtz ( 182424 ) on Tuesday February 27, 2018 @12:25PM (#56194863)

    If you want to avoid the IRS it is profoundly dumb to do business with a US company.

    Same as if you want to avoid the NSA, or the FBI, or the MAFIAA, or whatever.

  • This is the exact reason why I keep all my cryptocurrency under my mattress.

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