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Coinbase Loses Fight Over Names of Bitcoin Tax Evaders

By George Khoury, Esq. on December 01, 2017 | Last updated on March 21, 2019

A Bitcoin exchange service, Coinbase, try as it might, was unable to stop the IRS from securing a court order compelling the company to name names of potential tax evaders. Given that the current value of Bitcoin is at an all time high, this news didn't make much of an impact.

Last year, the IRS issued a summons to Coinbase demanding that the service turn over their entire transaction history for 2014 through 2015. The federal agency, for that time period, only received tax gains reporting related to Bitcoin for less than a thousand individuals. Given the consistent upward trend in the value of Bitcoin, the IRS seems compelled to investigate whether Bitcoin users are trying to evade taxes using the cryptocurrency.

Order Up, So What?

While there are definitely positive aspects associated with Bitcoin, such as using the Blockchain and being decentralized, the anonymity of the cryptocurrency may soon be a thing of the past. The order out of the Northern District Court in California will require Coinbase to divulge over 14,000 users to the IRS. Each of those users has transacted in over $20,000 worth of Bitcoin during 2014 or 2015.

However, even if the IRS is able to find that Bitcoin users have evaded U.S. taxes, unless that user has reachable assets, of which the Bitcoin would not be, getting their money could be nearly impossible. Because of the decentralized nature of Bitcoin, so long as a person controls their own keys and no third party has that information, a person's Bitcoin could be un-seize-able, though their person can still be seized and jailed for refusing to comply or continuing to intentionally evade taxes.

Is Coinbase Off-Base?

In response to the court's order, Coinbase issued a statement on their blog asserting that the company obtained a partial victory in the battle against the IRS. Given the situation, it sounds like the company is claiming it partly won a fist fight because the person (IRS) who knocked them out scraped their knuckle on Coinbase's face.

While the company was successful in narrowing the scope of the summons, it explains that their most prolific users with the most invested into Bitcoin will likely feel the brunt of the court's order. Notably though, the company does not seem to be done fighting. Their blog certainly hints at trying to keep fighting the disclosure, and minimally, notifying the parties prior to disclosing their names.

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