Commodity exchanges are actually largely unregulated in the US. The existence of a large complicated federal law called the "Commodity Exchange Act" may at first blush make you think otherwise, but the CEA establishes rules for futures exchanges (including commodity futures exchanges), not commodity exchanges.
That was coinbase's argument in this case. Commodity trading is largely unregulated in the United States and this request from the IRS is highly unusual for commodity exchanges (mostly it's very broad scope) .
The "partial victory" was small. The "partial loss" was much larger.
The IRS still got 14,000 people's data in bulk. It just wasn't all of Coinbase's customers, as the IRS initially wanted. But it's still a far cry from investigating each person rather than fishing for crimes among thousands of people.
Repeating this over and over again means there weren't many positives from this decision.
> Second, the quantity of data we must produce for the approximately 14,000 customers who remain in scope has been significantly reduced.
And what is this "quantity of data"? Are they stripping PII or transaction information from the data? If not then knowing the user information and transaction information is enough for the IRS.
A 97% reduction from the original request does seem like a 'partial' victory to me. IRS asked for all users data it seems and they reduced it to only users with $20k in transactions with a particular timeframe.
The original proposition by the government may have been totally ridiculous and over-reaching. Maybe the IRS never fully intended it to work. But I'm not so sure that's the case, given the US gov's liberal sweeping up of data. IRS also has a history of getting what it wants.
But as far as tangible 'wins' here I believe you would have to be dumb to have trusted Coinbase to protect your privacy. They have always been very obviously corporate 'straight-edge' service and very willing to follow every financial rule in an effort to be fully legitimate. Given the amount of capital they raised and their US residency this is all not surprising.
So I'm kinda surprised they weren't already handing over every users information... that's a win in my books. But obviously I've viewed them with very low standards.
97% reduction? Not really. Given how the price of BTC/ETH is going up, they will soon have to report pretty much every user that put more than a couple hundred dollars initially.
Sure it was a victory. But that was not the point of the case. IRS had already agreed to the 97% reduction as seen from the previous post. They went to court because they wanted it to reduce even more. That didn't happen here.
If your intent is to hide something from the government, you really need to only do your business on the black market, with people who are already strongly disincentivized to cooperate with the government.
Otherwise, just pay your capital gains tax and feel good about supporting the general welfare, because every last person that depends on being in the good graces of the government in order to earn their living will roll on you in an instant.
All you U.S.-based Bitcoin speculators have been paying your capital gains taxes, right?~
If you don't want to realize a taxable gain, never buy anything from the U.S. with it, especially dollars. If you don't want to realize a taxable gain that the IRS will know about, don't buy anything from anyone with an EIN. If you're going to be a criminal, please at least be an intelligent criminal.
The only justification the IRS has for invading the privacy of thousands of people is because the stupid criminals are embarrassing them. They estimated only 7-9% of Bitcoiners declare and pay tax on capital gains? So if you don't want Coinbase to be forced to turn over your records, your other option is to volunteer to give them to the IRS yourself. Not much of a choice, but the government wants money, and they prefer to take it from the people who obviously have it, because it's easier. So you illegally conceal, or you legally comply. You can't do it half-assed in either direction.
If your intent is the former, you cannot do it through Coinbase, because they must comply to exist.
While I unequivocally despise the usual tactics of the government with respect to taxation, they are at least predictable, so anyone who is relying on Coinbase to protect them is acting foolishly.
There's a lot of careful phrasing in this post so I don't think Coinbase is being transparent.
1) "14,000 customers" - the just a one-time demand customers records from a year ago? Coinbase had 13.1 million customers a few weeks ago, and are adding hundreds of thousands more a week. If there's a "97% reduction in the number of customers impacted" does that mean there are 13.1 million * 0.03 = 393,000 are affected? Are they doing ongoing disclosures?
2) Does the $20,000 threshold mean total value when acquired? Or current market value? Total withdrawn to a cryptocurrency address? Total withdrawn to a bank account? If I do 10 buys and 10 sells worth $1,000 each does that qualify?
1) It's only 14k people, for activity between 2013-15. There are likely to be further disclosures for later years, depending on what the IRS finds for the years they are already looking at. They may also request information for more customers in later years if the number of customers that meet their criteria for suspicious activity goes up. Previously the IRS requested info on pretty much anyone, but now after court review the summons has been restricted to the customers with potentially suspicious transactions (see below).
2) According to the court order, the summons requests info for customers “with at least the equivalent of $20,000 in any one transaction type (buy, sell, send, or receive) in any one year during the 2013-2015 period.” Buy and sell transactions of BTC meaning a person put dollars in their account to convert to BTC or took BTC out of their BTC wallet for dollars in their Coinbase account. Whether they then withdrew it from Coinbase to their bank account is irrelevant for tax purposes because they either realized a gain or a loss upon the sale so they had to report it as income if there was a gain.
So Coinbase will run a query aggregating the transactions by year, account, customer, and type, then produce all the records for any customer with any item over $20k, except those who had only buy transactions because the summons does not cover people who only bought and held.
For send/receive transactions, the $20k will almost certainly be the FMV at the time of the transaction. That is easy enough to calculate based on transaction time, transaction BTC amount, and price of BTC at that time. The FMV should be recorded as a matter of course in Coinbase's ledgers, though I am not an insider so I do not know for certain. I would be very, very surprised if their accountants did not insist on recording that information on some ledger for book purposes anyway. The buy, sell, and withdrawal transaction amounts very definitely are recorded on their ledgers and that amount will simply be the nominal amount at the time because they are denominated in dollars anyway.
If you did ten sales worth $10k total, no that wouldn't be covered. Twenty sales worth $20k would be, even if you had a corresponding $20k of buys that netted out to zero gains. In that case, Coinbase will give your info to the IRS who will then take no action because there was no income to report and thus no failure to report it.
Which is to say, the IRS can request someone's info, but that does not necessarily mean the IRS will take any action or that the person has done anything wrong. The IRS has simply requested info for people whose activities can be categorized as higher risk for tax evasion. They will then compare the account information with filed tax returns to determine if the person has failed to report any income. Some people will have reported their BTC gains. Others will have no realized gains. Most people will probably fall into those categories.
A very few will have very complicated records with lots of BTC sent and received which may require an audit to sort out. Some of those will be legitimate BTC users, others may be using their BTC transactions to disguise complicated financial transactions from the IRS. We'll have to see, though I am interested to see how it all shakes out.
I had assumed Coinbase needed my SSN because they were reporting to the IRS. If they aren't reporting to the IRS, what in the world are they using my SSN for?!?
My guess is that they know they will need to report eventually, so they are covering their bases now, but still fighting to put it off as long as possible.
> narrowed summons affects approximately 14,000 of the highest-transacting customers from 2 to 4 years ago. The rest of the 480,000 customers remain unaffected,
Seems like the IRS is only going after the big fish for now. I wouldn't be surprised if we see a micro crash in the next couple of weeks as the big players go to the sidelines to see how this plays out. Once the IRS gets involved regulations for transparency usually follow. just my 0.02
This whole thing looks rather silly. Like, you either find a decent exchange, expect it to be legit and that includes cooperating with IRS and other parts of the government when needed. You know, like you expect responsible financial institutions to do. Or just find some maybe less legit ones at your own risk.
Coinbase can't be both legit and 'oh look we resist The Man'. Urgh.
IF coinbase is naive enough to think they can win a fight with the IRS it will be interesting to see them go down throwing punches into thin air in round 2.
On my end, I made the assumption that the IRS was going to get this data, anyway. Though Coinbase doesn't fall under the same blanket as my bank, with the way they operate and what they do, it's only a matter of time before they're required to provide the same records that my bank provides -- 1099 and other tax-related forms.
No transaction you perform with a typical bank is secret, that data is used to determine what you must pay in taxes and the IRS is rather consistent in getting that information and coming down hard -- even on small tax cheats -- when you fail to report your earnings properly. I'm just "the little guy" and that $3,000 or so of ETH that I cashed out will be appearing as a line-item on my tax filings in the early part of next year. It's a stupid thing to pay a penalty/fine on. I'm not a fan of how we're taxed in this country or how the IRS operates[0] but I'm not interested in trying to solve the problem by attempting to get away with breaking the (bad) laws and as someone with friends who have tried to get away with such things and lost pretty horribly, I'll learn from other's mistakes rather than make them myself.
When I saw that they asked for all of Coinbase's records, I not only wasn't surprised -- I fully expected they'd actually get all of them. While I'm glad that I was wrong in that expectation, it's not something that should motivate anyone into thinking they'll fly under the radar with unreported earnings. Now ... how on earth I am supposed to claim this income -- all made from mining, not "purchased" using currency -- will have to be figured out by my CPA. I'm just glad that all of my coins are old enough that they (hopefully) qualify as long-term capital gains, but IANACPA.
[0] It always seemed curious to me that financial transactions -- provided they go through a bank (which the vast majority of them do) are effectively free of 4th Amendment protection, and it bothers me that tax related crimes are handled unlike any other crime in the US -- an IRS audit is, effectively, "We think you're guilty; prove to us otherwise or pay the fine"
In relation to your footnote, banks are third-party and would clearly fall under the ideas of third-party doctrine[0]. While this was only clearly put into place in relation to telecom in the 70s, this basic concept has existed in common law for a long time.
The law is a funny little thing. The thing I take more issue with is the concept of how audits are handled -- "guilty until proven innocent".
I have a friend who runs a seasonal cash-only business who got audited about 5 years ago. If you knew this individual, personally, you wouldn't waste your time auditing him -- he's a super-conservative Christian fellow, who, while not being terribly big fans of The Government -- wouldn't cross even the slightest gray-area as far as ethical, let alone legal, boundaries are concerned. He hired a CPA to do his family's taxes and I guarantee he had receipts accounting for every single penny, but owing to his frugality, he appeared to have a larger lifestyle on the outside than could be accounted for with his earnings[0].
The audit went on for the better part of a year with him having to prove that he wasn't hiding income. In the end, the IRS was satisfied due to his careful record-keeping and he managed to get a few dollars back by revising his return and accounting for some deductions that he decided not to take ... out of fear of being audited[1].
[0] This is a guy who in 2001 showed me a $600 grocery bill that he paid only the sales tax on due to his careful Couponing. He also lived in his own (mortgaged) home when he was 19-years old and was only making $7.50 an hour (which, while I don't live in Silicon Valley, the area he lived in was not "inner city" and there's no way I can do the math to figure out how he pulled it off, let alone found a bank to give him a loan).
[1] And having beat the audit, he never fails to take any deduction that he is eligible for.
28 comments
[ 0.21 ms ] story [ 73.8 ms ] threadThe IRS still got 14,000 people's data in bulk. It just wasn't all of Coinbase's customers, as the IRS initially wanted. But it's still a far cry from investigating each person rather than fishing for crimes among thousands of people.
> we were proud to accomplish two important victories for our customers.
> First, the government vastly narrowed the scope of its summons.
This was already their previous "win":
https://blog.coinbase.com/coinbase-irs-update-ed9c966c7747?s...
Repeating this over and over again means there weren't many positives from this decision.
> Second, the quantity of data we must produce for the approximately 14,000 customers who remain in scope has been significantly reduced.
And what is this "quantity of data"? Are they stripping PII or transaction information from the data? If not then knowing the user information and transaction information is enough for the IRS.
The original proposition by the government may have been totally ridiculous and over-reaching. Maybe the IRS never fully intended it to work. But I'm not so sure that's the case, given the US gov's liberal sweeping up of data. IRS also has a history of getting what it wants.
But as far as tangible 'wins' here I believe you would have to be dumb to have trusted Coinbase to protect your privacy. They have always been very obviously corporate 'straight-edge' service and very willing to follow every financial rule in an effort to be fully legitimate. Given the amount of capital they raised and their US residency this is all not surprising.
So I'm kinda surprised they weren't already handing over every users information... that's a win in my books. But obviously I've viewed them with very low standards.
Otherwise, just pay your capital gains tax and feel good about supporting the general welfare, because every last person that depends on being in the good graces of the government in order to earn their living will roll on you in an instant.
All you U.S.-based Bitcoin speculators have been paying your capital gains taxes, right?~
If you don't want to realize a taxable gain, never buy anything from the U.S. with it, especially dollars. If you don't want to realize a taxable gain that the IRS will know about, don't buy anything from anyone with an EIN. If you're going to be a criminal, please at least be an intelligent criminal.
The only justification the IRS has for invading the privacy of thousands of people is because the stupid criminals are embarrassing them. They estimated only 7-9% of Bitcoiners declare and pay tax on capital gains? So if you don't want Coinbase to be forced to turn over your records, your other option is to volunteer to give them to the IRS yourself. Not much of a choice, but the government wants money, and they prefer to take it from the people who obviously have it, because it's easier. So you illegally conceal, or you legally comply. You can't do it half-assed in either direction.
If your intent is the former, you cannot do it through Coinbase, because they must comply to exist.
While I unequivocally despise the usual tactics of the government with respect to taxation, they are at least predictable, so anyone who is relying on Coinbase to protect them is acting foolishly.
1) "14,000 customers" - the just a one-time demand customers records from a year ago? Coinbase had 13.1 million customers a few weeks ago, and are adding hundreds of thousands more a week. If there's a "97% reduction in the number of customers impacted" does that mean there are 13.1 million * 0.03 = 393,000 are affected? Are they doing ongoing disclosures?
2) Does the $20,000 threshold mean total value when acquired? Or current market value? Total withdrawn to a cryptocurrency address? Total withdrawn to a bank account? If I do 10 buys and 10 sells worth $1,000 each does that qualify?
So if you do a total of $20k in buys, or $20k in sells, or deposits, or withdrawals, you are targeted.
This is particuarly invasive for people running trading bots, which are likely to have very high transaction volumes but very low profit margins.
2) According to the court order, the summons requests info for customers “with at least the equivalent of $20,000 in any one transaction type (buy, sell, send, or receive) in any one year during the 2013-2015 period.” Buy and sell transactions of BTC meaning a person put dollars in their account to convert to BTC or took BTC out of their BTC wallet for dollars in their Coinbase account. Whether they then withdrew it from Coinbase to their bank account is irrelevant for tax purposes because they either realized a gain or a loss upon the sale so they had to report it as income if there was a gain.
So Coinbase will run a query aggregating the transactions by year, account, customer, and type, then produce all the records for any customer with any item over $20k, except those who had only buy transactions because the summons does not cover people who only bought and held.
For send/receive transactions, the $20k will almost certainly be the FMV at the time of the transaction. That is easy enough to calculate based on transaction time, transaction BTC amount, and price of BTC at that time. The FMV should be recorded as a matter of course in Coinbase's ledgers, though I am not an insider so I do not know for certain. I would be very, very surprised if their accountants did not insist on recording that information on some ledger for book purposes anyway. The buy, sell, and withdrawal transaction amounts very definitely are recorded on their ledgers and that amount will simply be the nominal amount at the time because they are denominated in dollars anyway.
If you did ten sales worth $10k total, no that wouldn't be covered. Twenty sales worth $20k would be, even if you had a corresponding $20k of buys that netted out to zero gains. In that case, Coinbase will give your info to the IRS who will then take no action because there was no income to report and thus no failure to report it.
Which is to say, the IRS can request someone's info, but that does not necessarily mean the IRS will take any action or that the person has done anything wrong. The IRS has simply requested info for people whose activities can be categorized as higher risk for tax evasion. They will then compare the account information with filed tax returns to determine if the person has failed to report any income. Some people will have reported their BTC gains. Others will have no realized gains. Most people will probably fall into those categories.
A very few will have very complicated records with lots of BTC sent and received which may require an audit to sort out. Some of those will be legitimate BTC users, others may be using their BTC transactions to disguise complicated financial transactions from the IRS. We'll have to see, though I am interested to see how it all shakes out.
Also, I couldn't find information on how the 20k $ was calculated. Is this based on the amount of money in? Or the amount of money after selling ?
Seems like the IRS is only going after the big fish for now. I wouldn't be surprised if we see a micro crash in the next couple of weeks as the big players go to the sidelines to see how this plays out. Once the IRS gets involved regulations for transparency usually follow. just my 0.02
If you think they're giving up, you got another thing coming.
Reliable exchanges mean eventual taxation.
Whether or not an exchange also reports it is a separate issue.
Coinbase can't be both legit and 'oh look we resist The Man'. Urgh.
No transaction you perform with a typical bank is secret, that data is used to determine what you must pay in taxes and the IRS is rather consistent in getting that information and coming down hard -- even on small tax cheats -- when you fail to report your earnings properly. I'm just "the little guy" and that $3,000 or so of ETH that I cashed out will be appearing as a line-item on my tax filings in the early part of next year. It's a stupid thing to pay a penalty/fine on. I'm not a fan of how we're taxed in this country or how the IRS operates[0] but I'm not interested in trying to solve the problem by attempting to get away with breaking the (bad) laws and as someone with friends who have tried to get away with such things and lost pretty horribly, I'll learn from other's mistakes rather than make them myself.
When I saw that they asked for all of Coinbase's records, I not only wasn't surprised -- I fully expected they'd actually get all of them. While I'm glad that I was wrong in that expectation, it's not something that should motivate anyone into thinking they'll fly under the radar with unreported earnings. Now ... how on earth I am supposed to claim this income -- all made from mining, not "purchased" using currency -- will have to be figured out by my CPA. I'm just glad that all of my coins are old enough that they (hopefully) qualify as long-term capital gains, but IANACPA.
[0] It always seemed curious to me that financial transactions -- provided they go through a bank (which the vast majority of them do) are effectively free of 4th Amendment protection, and it bothers me that tax related crimes are handled unlike any other crime in the US -- an IRS audit is, effectively, "We think you're guilty; prove to us otherwise or pay the fine"
[0] https://en.wikipedia.org/wiki/Third-party_doctrine
I have a friend who runs a seasonal cash-only business who got audited about 5 years ago. If you knew this individual, personally, you wouldn't waste your time auditing him -- he's a super-conservative Christian fellow, who, while not being terribly big fans of The Government -- wouldn't cross even the slightest gray-area as far as ethical, let alone legal, boundaries are concerned. He hired a CPA to do his family's taxes and I guarantee he had receipts accounting for every single penny, but owing to his frugality, he appeared to have a larger lifestyle on the outside than could be accounted for with his earnings[0].
The audit went on for the better part of a year with him having to prove that he wasn't hiding income. In the end, the IRS was satisfied due to his careful record-keeping and he managed to get a few dollars back by revising his return and accounting for some deductions that he decided not to take ... out of fear of being audited[1].
[0] This is a guy who in 2001 showed me a $600 grocery bill that he paid only the sales tax on due to his careful Couponing. He also lived in his own (mortgaged) home when he was 19-years old and was only making $7.50 an hour (which, while I don't live in Silicon Valley, the area he lived in was not "inner city" and there's no way I can do the math to figure out how he pulled it off, let alone found a bank to give him a loan).
[1] And having beat the audit, he never fails to take any deduction that he is eligible for.