Tax Notes Quotes Josh Ungerman on DOJ Seeks John Doe Summons on Largest U.S. Bitcoin Exchanger (Coinbase Inc.)
In an effort to combat tax evasion, the Justice Department petitioned a district court November 17 to serve a John Doe summons on bitcoin exchanger Coinbase Inc., seeking records and account holder identities. The following excerpt was taken from the Tax Notes’ article.
Josh O. Ungerman of Meadows, Collier, Reed, Cousins, Crouch & Ungerman LLP argued that the summons was broad and that if granted, it would provide the IRS with a large amount of information. The IRS would then cross-reference that information with tax returns and classify which returns had the most potential for a successful criminal investigation versus those for which proposed civil adjustments were necessary, he said.
The defense to the John Doe Summons in the Coinbase matter will most likely revolve around the broad definition of the ascertainable class – every user from 2013 to 2015 – and the existence or not of a reasonable basis to believe the class of persons failed (or may fail) to comply with the internal revenue laws,” Ungerman said, noting that the government cites three instances of noncompliance, two of which include Coinbase. “The likely challenge would be based on producing a vast amount of information based on only two Coinbase instances of noncompliance instead of identifying the specific types of characteristics that lead to the assumption there is noncompliance,” he said, citing the tax shelters in the late 1990s and early 2000s when the IRS identified specific characteristics of taxpayers, promoters, and financial institutions that were red flags of noncompliance.
The mere fact that a taxpayer conducted business with Coinbase is the only characteristic that triggers the production of information to the IRS; there is no additional refining or limiting characteristic that narrows the field of potential candidates for disclosure,” Ungerman continued. He added that a transaction dollar threshold could be one way to narrow the request. “The IRS is trying to replicate the success with a John Doe summons to a bartering organization requesting information from the 1970s with virtual currencies and Coinbase. I would not be surprised if the district court judge required more refinement with respect to Coinbase.
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