We recently blogged about a federal court judge ordering Coinbase to release information about certain Coinbase accountholders. On February 23, 2018, Coinbase sent messages to approximately 13,000 of its customers, informing them that information regarding their accounts will be provided to the IRS for tax information purposes in accordance with the United States v. Coinbase, Inc. ruling.
In its notification, Coinbase congratulated itself on its success in reducing the scope of the IRS summons from the originally sought-after 500,000 customers and far more extensive categories of information. Coinbase noted that since more than six months had passed between the time it received the IRS summons and the court resolution of the issue, under Section 7609(e)(2) the statute of limitations for tax violations under IRC Section 6501 (civil action) and IRC Section 6531 (criminal prosecution) were suspended from June 8, 2017 until Coinbase completes its response to the summons.
Coinbase stated that it expected to produce the information requested within 21 days (by mid-March), and advised its customers to seek legal advice if they have any questions or concerns regarding the effect of the summons on their previous years’ tax returns.
The full text of the Coinbase notification can be found on the Coinbase website.
This is just the beginning…
The IRS initially issued its summons when it realized that only 802 Coinbase customers had declared bitcoin income in 2015. With the significant rise in the value of bitcoin this year, it is very likely that the IRS will continue its search for taxpayers who have failed to report their cryptocurrency transactions – and that its search won’t be limited to those who keep accounts with Coinbase, Inc.
Although you probably aren’t going to receive a 1099-K, you can obtain a transaction record from your exchange with the amount of cryptocurrency you bought, sold or exchanged, and the date of each transaction. You will need to pay long-term capital gains (around 20%) for bitcoin sold after more than year, otherwise at ordinary income rates.
The IRS has the technology and resources to identify people who have failed to report all their income and assets, and has a number of programs that enable it to enforce tax compliance. The Coinbase, Inc. summons is just the beginning of the cryptocurrency owner search.