After a legal case before a Californian federal court, the exchange is now being forced to release personal data for all customers transacting sums over $20,000.
This Tuesday, November 28, 2017, Coinbase was ordered by a federal court in the state of California to release thousands of customer records to the IRS (short for the Internal Revenue Service). Coinbase is the largest service offering digital wallets and cryptocurrency exchange currently operating in the U.S. and one of the largest in the world.
The data requested contains birthdates, addresses, names, and digital activity records for all users selling, buying, sending, or receiving Bitcoin totaling over $20,000 in the 2013-2015 timeframe.
This order comes as a conclusion to a legal fight between Coinbase and the IRS that started in November of last year. The battle began after the IRS demanded complete user data from Coinbase for all its clients. Both the company and its customers challenged this request, arguing against its excessive breadth. These complaints determined the IRS to narrow the parameters to those explicated above.
An in-house audit from Coinbase dating in July details that as many as 6,200 users of the targeted 14,000 had transacted sums smaller than $60k USD in the above time period, making them largely irrelevant for any party interested in tracking illegal activity.
Brian Armstrong, CEO of Coinbase, explained the firm’s disagreement with the IRS’ request in January of this year in a post on Medium. In it, he argued that such a request for a scope so broad, solely based on their use of cryptocurrency, represents a major breach of privacy. He went on to say that it is not a fertile method for the financial authorities and private entities to reach their common goal.
Seeing how the IRS has dubbed digital currency as property in order for it to be charged under federal tax laws, all American citizens transacting cryptocurrency are legally obligated to pay capital gains tax. Nonetheless, according to the court order, over 10,000 people transacted sums greater than $20k USD in cryptocurrency, whereas around 800-900 people transacting in bitcoin in the specified time period have filed their tax returns accordingly. The court order explains that this fact entails a failure to report gains in bitcoin capital by a relatively large number of Coinbase users.
What this means is that the IRS is simply attempting to coordinate a response to tax evasion through bitcoin. However, one could argue that the technology itself is way ahead of the current legal framework for taxes. This effectively means that 14,000 clients of Coinbase are now being investigated for tax fraud for doing nothing more than legally using a legitimate, albeit avant-garde, technology. Legal officials in the U.S. passed a bill this September that provides tax exemptions for bitcoin transactions in sums less than $600, but this is the only progressive measure to be seen on the part of legislating bodies.
We have requested comment from Coinbase, asking for their future plans in this regard. We will provide updates on this post when they reach back to us.