In November of 2016, the Internal Revenue Service ordered bitcoin trading company Coinbase to hand over the identities of millions of customers who made transactions through the company over three years, to find out who hasn’t been paying their taxes.
Now, Coinbase CEO Brian Armstrong has suggested in a Medium post that the company will go to court with the IRS, writing, “…it appears we will be forced to contest [the subpoena] in court to protect our customers’ privacy, at great expense.”
Online bitcoin exchanges are the key point of access for people buying or selling bitcoin. Coinbase, founded in 2012, is one of the oldest and largest.
The IRS ordered Coinbase to turn over the identities of all US customers who used the exchange between 2013 and 2015, in order to determine whether users have been paying taxes on their bitcoin.
The summons has been highly controversial in cryptocurrency circles since it would reveal the identities of many people not under active investigation, and who haven’t broken any laws. People do pay taxes on bitcoin (or they’re supposed to), and according to the IRS, virtual currencies are treated like property for federal tax purposes.
“Asking for detailed transaction information on so many people, simply for using digital currency, is a violation of [customers’] privacy, and is not the best way for us to accomplish our mutual objective,” Armstrong wrote.
Armstrong also suggested an alternate way forward for Coinbase and the IRS, which he writes is for all US bitcoin users to pay their taxes: Coinbase would send a yearly tax form that is commonly used by stock brokers to report financial gains or losses to customers and the IRS, he argued.
Motherboard reached out to the IRS for comment on whether this proposal is realistic, but hasn’t received a response.
But this proposal still wouldn’t help the IRS to understand whether past Coinbase customers paid their taxes. So, if Coinbase is planning to stick to their word, it looks like the company may be headed to court.
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