Bitcoin Exchange Receives Summons

September 15, 2019 | Article

In a petition filed November 17, 2016, with the U.S. District Court for the Northern District of California, the U.S. Department of Justice (DOJ) asked the court for a John Doe summons to be issued on Coinbase Inc., a bitcoin exchange

The John Doe summons would require Coinbase Inc., a U.S. bitcoin exchange, to provide the DOJ with information related to all bitcoin transactions it processed between 2013 and 2015. The DOJ would then share the information received with the Internal Revenue Service to be matched against filed tax returns. The IRS would be looking for bitcoin transactions that have the potential for successful criminal investigation and prosecution.

Potential for Tax Evasion
The IRS has previously stated a position that virtual currency transactions, such as bitcoin, are property on which gain can be realized. The IRS also believes bitcoin transactions provide an opportunity for tax evasion. In fact, according to the IRS, the potential for tax evasion is enhanced via bitcoin transactions, "because there is no third-party reporting of virtual currency transactions for tax purposes ... and the likelihood of underreporting is significant."

The petition request by the DOJ is broader than might usually be granted by the court, and will be resisted vigorously by Coinbase Inc. to protect its user base. But, precedent may be available to the DOJ by looking back to the years when bartering transactions were being introduced.

Cryptocurrency transactions are subject to new tax guidance.

Take Action
If there are any bitcoin transactions that may be of concern, now is the time to take action to review such transactions with your tax advisor. If a reporting issue may exist, voluntary disclosure should be considered.

Further, virtual currencies have gained significant attention over the last few years, leading to a strong need for proper record keeping. Having conversation with your business advisor can help ensure you have taken the necessary steps to prepare yourself for compliance.

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