The Internal Revenue Service is heading to court today with the goal of forcing Coinbase, a U.S. cryptocurrency exchange, to hand over data on a host of its users. Why? According to the government agency, all is not right in the land of blockchains — and it's past time the company play ball.
The beef spans back to 2016, reports Bloomberg, when the IRS requested data on the service's users claiming that an unspecified number failed to properly report their holdings for tax purposes. Coinbase, for its part, called the summons overly broad and refused to comply.
SEE ALSO:This app will automatically invest your spare change in cryptocurrencySo what's going on here? Is the IRS on a so-called fishing expedition, simply hoping to stumble across some untoward behavior? Or is there actually something to its allegations?
We reached out to the IRS to ask that very question, but received no response as of press time. However, Bloombergnotes that "The IRS said it detected a 'reporting gap' between the 500,000 virtual currency users Coinbase reported between 2013 and 2015 and the less than 900 bitcoin users reporting gains or losses for each of those years."
If that's true, and the IRS is successful in its effort to get access to Coinbase user data, a lot of people could end up owing the U.S. government serious cash. That's because, according to the IRS, "virtual currency is treated as property for U.S. federal tax purposes."
Credit: NurPhoto/Getty ImagesNot all Coinbase users need to fear the watchful eye of the Tax Man, however. While the IRS initially requested data on all of the company's account holders, that number has since been whittled down to 14,355. Specifically, according to court documents from this past July, the IRS is interested in users "with at least the equivalent of $20,000 in any one transaction type (buy, sell, send, or receive) in any one year during the 2013-15 period."
Small-time traders and cryptocurrency hobbyists, in other words, are probably in the clear.
So what does Coinbase have to say about all this? We reached out to the company for comment, but have yet to receive a response. And while we'll certainly update this when and if we hear back, the company already put forth its own opinion of what's going on in court documents.
“The IRS is engaging in a massive fishing expedition," Bloombergreports Coinbase said, "hoping to find some evidence of tax avoidance so that the IRS may quiet its critics in Washington, D.C., and justify this misguided adventure."
Whether or not that is true is now up for a judge to decide — a decision that 14,355 Coinbase users will likely be anxiously awaiting.
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