Customers of Coinbase will be glad to know the Internal Revenue Service (IRS) will not be getting their hands on all data and access to how much customers traded on their platform. The IRS did win over data from users who transacted amounts greater than $20,000 or more in a single year during the 2013-2015 period. Coinbase stated they would give any users fair notice if their data was going to be handed over to the IRS.
U.S. Magistrate Judge Jacqueline Scott Corley in San Francisco ruled that the tax agency's demand for information was not overly intrusive. This came as the price of one Bitcoin broke through $10,000 on Tuesday.
With only 802 people reporting capital gains or losses on Bitcoin between 2013 and 2015, it is no shocker the IRS wants to see which citizens owe taxes. During that period more than 14,000 Coinbase users either bought, sold, sent or received at least $20,000 worth of Bitcoin. Coinbase currently boasts more than six million customers.
Judge Corley stated:
"Many Coinbase users may not be reporting their bitcoin gains, the IRS has a legitimate interest in investigating these taxpayers.”
Judge Corley ruled that Coinbase must turn over basic identifying information, records of account activity and period statements for accounts with the equivalent of $20,000 in any one transaction type during the 2013 to 2015 time frame.
Coinbase throughout the whole case stood by it's customers, not budging at the IRS's requests for customer info. The agency even scaled back it's notice in July, just requesting customers info that transacted more than $20,000 in a single year during the 2013-2015 period. Coinbase saw the demand as a blatant disregard to privacy by the agency.
A statement was released by Coinbase to the companies blog regarding Tuesday's outcome:
"Coinbase started this process more than 12 months ago, and while today’s result is not the complete victory we hoped for, it does represent a substantial and unprecedented victory for the industry and the hundreds of thousands of customers that would have been unfairly targeted if it weren’t for our action."
Many in the "crypto world" view this as very controversial, the IRS having the ability to probe any financial institution without reasonable suspicion. Coin Center's Peter Van Valkenburgh gave us his two cents on the ordeal:
"We remain deeply unsatisfied with the lack of justification provided by the IRS. Without better rationale for why these specific transactions were suspect, a similarly sweeping request could be made for customer data from any financial institution. It sets a bad precedent for financial privacy.”
What to Expect
They say there are two things that are certain in life: Death and Taxes.
That being said, expect to pay taxes on gains/losses sustained in any crypto investment. Paying taxes obviously depends on which country you live in, so always check to see what your tax code is.
I'm honestly surprised that we haven't seen the IRS and other countries tax agencies crack down on cryptocurrency as more people continue to flood into the space. The IRS has been using software from Chainanalysis since 2015 to track transactions by users.
As cryptocurrency continues to grow, expect more crack downs on citizens who avoid paying taxes on the gains they made while holding cryptocurrency.
For those who wish to remain anonymous, coins like Monero and Zcash offer much more privacy and anonymity than Bitcoin does, which is only pseudonymous.
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Disclaimer: This is not investment advice, always do your own research. It is very important to do your own analysis before making any investment based on your own personal circumstances.