In previous blog posts (HERE) and (HERE), we have discussed the IRS and Department of Justice focus on virtual currencies and the IRS John Doe Summons that was served on Coinbase, the largest Bitcoin exchange in the United States. Late last year, Coinbase was ordered to comply with the IRS John Doe Summons for customer information. The summons to Coinbase was based in part on information obtained by the IRS in an audit of one or more taxpayers who admitted they had been using Bitcoin to underreport their taxable income.
On February 23rd, Coinbase notified approximately 13,000 customers that it intends to comply with the court order to provide taxpayer ID, name, birth date, address, and historical transaction records for certain higher-transacting customers during the 2013-2015 period.
The government’s concern and focus on virtual currencies started in 2014 when the IRS established the Virtual Currency Issue Team and released Notice 2014-21, “Virtual Currency Guidance” (HERE. On September 21, 2016, the Treasury Inspector General for Tax Administration (“TIGTA”) issued a report entitled “As the Use of Virtual Currencies in Taxable Transactions Become More Common, Additional Actions Are Needed to Ensure Taxpayer Compliance” (HERE). The report focused on the increased use of virtual currencies and the IRS’ plans for addressing the tax issues surrounding virtual currencies. In particular, TIGTA was concerned with the likelihood of the use of virtual currencies in illegal transactions. The Coinbase John Doe Summons followed shortly thereafter.
Coinbase preparing to turn over records, the time for taxpayers to voluntarily notify the IRS about undisclosed transactions may be drawing to a close very quickly.
If you have any questions related to this blog post or any other civil tax or criminal tax-related matter, please feel free to contact me at (214) 749-2456 or at firstname.lastname@example.org.