Recently, the IRS won a battle to obtaining information from Coinbase, Inc. about U.S. taxpayers who bought and sold Bitcoin during 2013 through 2015. In this case, the court agreed with teh IRS and enforced the IRS’s John Doe summons to Coinbase, Inc. This summons will permit the IRS to obtain information from Coinbase about U.S. taxpayers that conducted transactions with “virtual currency” between 2013 and 2015. The IRS argued that the growth of virtual currency has grown exponentially and that there are many issues over the tax compliance of taxpayers who use virtual currency like Bitcoin. The IRS argued that the authorization of the John Doe summons would allow the Service to make sure taxpayers are fully reporting their income and paying their fair share of taxes.
This argument over Bitcoin is not new to the IRS. In 2014, the IRS announced that virtual currency should be treated exactly like property transactions, meaning that it would be taxed as ordinary income or as assets subject to capital gains taxes, depending on the circumstances. If the virtual currency was sold, it would have a gain or loss just like property. Since this pronouncement, the Service has been very focused on these virtual currency transactions, and these John Doe summons are seemingly a next step in the IRS trying to gather more information to take aggressive enforcement action.
In this case, the John Doe Summons seeks the identity of U.S. taxpayers that had at least $20,000 in any one type of transaction in 2013 to 2015. This means the IRS is looking for individuals that bought, sold, sent, or received at least $20,000 in Bitcoin in one transaction. Furthermore, the IRS is no longer interested in individuals who only bought, and subsequently held Bitcoin without ever selling it, during that time period.
Virtual currency, and its related tax compliance rules, is an evolving field and have left many taxpayers confused. If you have used Bitcoin in the past and have questions as to whether you have been tax compliance regarding those transactions, the attorneys at Terrence A. Grady & Assoc., Co., LPA can assist. Please call Kate Dodson at 614-849-0376.