The IRS has taken Coinbase to court to try to force them to provide customer financial records. The obvious point of this is so they can discover how much money Americans have made through Bitcoin and other crypto-currencies over the past several years, and demand that they pay taxes on their profits.
For a tax purposes, crypto is considered a property, which means they are subject to capital gains taxes. Those who have bought bitcoins through Coinbase (or anywhere else, as far as the IRS is concerned) are legally responsible for tracking all activity related to these assets. If they appreciate in value, taxes must be paid on the increase.
Not surprisingly, only a very small percentage of people who are trading in crypto are reporting their gains to the IRS. If the IRS wins this case against Coinbase, and all indications are that they will, it could result in millions of dollars being owed by many people.
The current case in question is only related to 14,000 customers of Coinbase, but assuming they win this case, they will likely file another case to get the information of many more users of the exchange.
The latest clue that the IRS will win their case comes from US Magistrate Judge Jacqueline Scott Corley, who recently said, “It’s legitimate for them to investigate whether people are making money on their bitcoin purchases. I have to give tremendous discretion to the agency as to how they investigate.”
If the IRS wins, the big question will be how hard they pursue the tax money they claim to be owed. Many people who have been successful in bitcoin aren’t seasoned or educated investors, but rather ‘tech nerds’ who happened to see the value in bitcoin far earlier than most. While the top tier bitcoin buyers should have the money available to pay their taxes, those who made a more modest (but still significant) amount may have trouble.
This is certainly a case that all who are interested in crypto will want to keep a close eye on. After all, the IRS isn’t going to stop with CoinBase. They will pursue people anywhere to get the taxes they feel they are owed.