Fourth Coinbase Customer Challenges IRS

Crime, Investing, News | July 20, 2017 By:

new filing in the Internal Revenue Service (IRS) case against the Coinbase cryptocurrency exchange has emerged. The filing indicates the U.S. Northern District Court of California has granted a motion on behalf of a fourth anonymous customer to challenge an IRS request for records.

The customer, listed as John Doe 4, joins three others in attempts to block the IRS efforts to obtain full records of customers with transactions totaling over $20,000. The IRS summons was first filed last November and requested all records, but has since been narrowed.

John Doe 4 is now allowed to represent users in a motion to challenge the IRS petition.

The ongoing dispute between the Internal Revenue Service (IRS) and Coinbase focuses on what the IRS claims is “unreported income” in its probe of the exchange’s customers, rather than requesting wholesale account activity.

Talks between the IRS and Coinbase have resulted in the federal agency narrowing its previously sweeping requests. It now asks for unspecified items that would help it track unreported income.

Previously, the IRS had demanded to see all of Coinbase’s customer activity from 2013 to 2015. The IRS has claimed that slightly over 800 people have declared gains or losses from bitcoin during that period, a time when the single-coin price mushroomed.

U.S. Magistrate Judge Jacqueline Scott Corley found John Doe 4’s intervention met summons sought by the IRS, which had rendered moot attempts to join the suit and quashed the summons by the other John Does.

Corley said the IRS had failed to show how it can “legitimately” use the records from Coinbase users.

“Under that reasoning the IRS could request bank records for every United States customer from every bank branch in the United States because it is well known that tax liabilities in general are underreported and such records might turn up tax liabilities,” Judge Corley said. “It is thus no surprise that the IRS cannot cite a single case that supports such broad discretion to obtain the records of every bank-account holding American.”

The IRS hasn’t accused Coinbase of engaging in any problematic activity. In all, the IRS asked for three years of data for more than one million customers, according to court filings.

John Doe 4 seeks an evidentiary hearing in search of “bad faith” from the tax agency. The Does have accused the IRS of targeting Tea Party political groups for increased scrutiny by harassing taxpayers who use virtual currency.