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Sunday, December 03, 2017

IRS On The Hunt for Bitcoin Gains

While bitcoin seems like money, for federal income tax purposes, it is not. Like any asset, when it is sold or used to purchase goods or services, gain results if the value of the bitcoin is greater than the taxpayer’s basis in it (generally, what the taxpayer paid to acquire it).

The IRS suspects that either intentionally or unintentionally, many taxpayers are not reporting their bitcoin gains. To help find such taxpayers, it issued a John Doe summons against Coinbase, a leading bitcoin firm, for extensive information on its users. Coinbase objected, but a federal court has now ordered it to comply. The IRS did not get access to all the information that Coinbase has on its customers, such as account opening records, copies of passports or driver's licenses, all wallet addresses, and all public keys for all accounts/wallets/vaults. Nonetheless, Coinbase has been ordered to turn over the following information for each customer, (1) the taxpayer ID number, (2) name, (3) date of birth, (4) address, (5) account activity including transaction logs or other records identifying the date, amount, and type of transaction (purchase/sale/exchange), the post transaction balance, and the names of counterparties to the transaction.

Tax return preparers should be asking their clients about bitcoin transactions, and taxpayers should know that the IRS is actively seeking information on persons that buy or sell bitcoin.

U.S. v. Coinbase, Inc., Case No. 17-cv-01431-JSC (U.S.D.C. Northern District of California)

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