It’s been known for months that the U.S. Internal Revenue Service was going after cryptocurrency tax cheats.
The reality is now really setting in, as Coinbase has notified thousands of its customers about it getting ready to hand over their crypto transactions, and personal data to the taxing authority.
On Friday, Coinbase notified about 13,000 customers about the IRS summons regarding their Coinbase accounts. The summons is the result of the IRS finding that far too few people were reporting their crypto gains when they filed their taxes.
This notification came on the heels of another from Coinbase that occurred earlier this month. The exchange began mailing out tax forms 1099-K to certain U.S. clients on Jan. 31.
How we got here
Coinbase, the world’s largest exchange, was singled out by the IRS at the end of 2016.
The original summons from the IRS to Coinbase called for data for about 500,000 people to be turned over. Coinbase refused to hand over that many, as well as the laundry list of items the IRS wanted.
Unable to fetch and secure the names of the millions who didn’t bother to fill out this Form 8949 and pay taxes as they should, the IRS forced Coinbase’s hand by taking it to court.
Through the contemptuous court battle with the IRS last year, Coinbase tried to fight having to turn over so much its customers’ information to the government agency. After all, part of the reason people have been enamored with cryptos is due to them being deregulated.
No matter, when it comes to taxes, the IRS stressed before the federal judge presiding over the case, that crypto investors had to report their gains. The judge agreed, especially when learning about how few were reporting those gains, and or losses.
The legal wrangling and accompanying court filings showed that Coinbase had at least 5.9 million customers who completed six billion transactions. However, only 800 to 900 taxpayers a year had electronically filed returns with a property description related to Bitcoin between 2013 through 2015.
You can run, but you can’t hide
The U.S. tax code requires crypto users be subject to a wide array of tax issues in the U.S. This includes the capital gains tax because the IRS considers cryptos as property. IRS rules specifically state Form 8949 is to be filed, and taxes paid for a “property description likely related to bitcoin.”
There has been considerable discussion over those who failed to file their taxes properly just simply not knowing they had to file. However, others believe these crypto holders did know, and were simply trying to hide their crypto gains from the IRS.
The IRS has said:
“U.S. taxpayers, including Coinbase users, have made use of virtual currencies to avoid the reporting and payment of taxes. [We need to] gain some degree of visibility into a space where it is already necessarily moving about somewhat in the dark.”
What Coinbase must fork over on its customers
The court ordered Coinbase to provide taxpayer ID, name, birth date, address, and historical transaction records for certain higher-transacting customers during the 2013-2015 period.
Coinbase says it is “unable to provide legal or tax advice.” In the notice, customers are directed to its page called Taxes FAQ for more information on taxes and digital currency. Also included is a link to the court’s judgment.