Bitcoin User Files to Block IRS Access to Coinbase Accounts: Online Gambling Watches

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The online gambling sector has fully embraced the anonymous digital currency known as Bitcoin, some claiming the platform accounts for more than a quarter of all payment processing.  There are even Web gambling sites that have cropped up that only deal in Bitcoin.

The IRS has stepped in recently to try and obtain more information on Bitcoin.  But one Coinbase customer has filed a motion in federal court seeking to intervene in a federal case in which the IRS is requesting information on all of Coinbase’s users.


Typically, the courts give the IRS wide latitude to enforce summonses that may uncover information regarding potential tax evasion. The IRS doesn’t need “probable cause,” or even “reasonable suspicion,” like the police might need to investigate a crime. Rather, under federal law, the IRS has the power to examine any data that may be relevant to determining the correct tax owed by any taxpayer. If that sounds sweeping, it is.

The IRS’s goal here is to use this broad power to obtain heaps of data on digital currency transactions. What’s more, the IRS hopes to get clues on who should be targeted for audits. That is the real prize. But the IRS doesn't have this data yet. And the motion makes a number of arguments as to why the IRS summons is flawed.

Among those flaws, that the effort may impact more than a million Coinbase users, that the summons is too broad in its scope and that the IRS is too severely underfunded to review so much data.

The motion goes on to note that the IRS has, according to its own Inspector General, issued confusing and vague guidance regarding the taxation of virtual currency transactions, and that it has failed to provide any further clarity for taxpayers transacting in Bitcoin, even after this criticism, the Forbes piece notes.

- Aaron Goldstein,

Business/Financial News

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