IRS Coinbase – Subpoena Issued for Coinbase Taxes & Foreign Reporting
IRS Coinbase – Subpoena Issued for Coinbase Taxes & Foreign Reporting
Things are looking a little more grim for customers of Coinbase who are considered to be US account holders. Coinbase has been ordered to comply with IRS demands for accountholder information.
IRS Coinbase Subpoenaed has been issued, with several thousands account holders at risk for U.S. Government tax liability and reporting penalties
Even though Coinbase tried to fight the IRS Subpoena, Coinbase has been ordered to disclose the account information (aka wallet information) for nearly 15,000 individuals who may be considered US account holders and are maintaining their Bitcoin/crypto currency with Coinbase.
Two Main Disclosure Issues
When it comes to Bitcoin, there are two main disclosure and reporting requirements that individuals must keep in mind:
Domestic Bitcoin Tax Issues
First, there is a domestic aspect of the disclosure. Since Bitcoin is not considered currency, but is considered property, there are many aspects to the income tax of Bitcoin.
– If Bitcoin is traded, there may be capital gain; and
– If Bitcoin is being used in lieu of currency (payment for services for example), then the key issue for the IRS is that the recipient must report the currency as income
In either situation, the individual may have capital gain or income tax requirement that would have to be disclosed on the US tax return.
International Tax Issues
When it comes to offshore disclosure, the main issue is whether account or wallet is being held in the United States or in a foreign country, and whether the account is earning passive income (Interest, Dividends, Capital Gains). If it is being held in a foreign country, then the Bitcoin account/wallet may have to disclosed on an FBAR and other Forms.
**Be careful, the IRS written information online re: non-reporting requirement for FBARs is for prior years.
Even if your Bitcoin is being held in the US wallet, if you were to transfer the Bitcoin to a foreign account, there are probably some online transfer records, even if you want to believe (read: Wish Hopeful) there are not, that shows some sort of transfer from your U.S. Based Bitcoin Wallet, to an account overseas.
If you happen to have money in a domestic Bitcoin wallet, and you have some knowledge or concern it was transferred to a foreign account(s), which exceeds more than $10,000 in value, you should speak with an experienced offshore disclosure where to try to get into compliance before the IRS has your information.
Coinbase has grown into one of the top Bitcoin companies worldwide. As anybody with crypto currency/Bitcoin is aware, Coinbase is one of the larger online storage facilities/platforms, which is used to buy, sell, trade, and hold Cryptocurrency.
Typically, if an account/wallet is located within the United States, then there is no reporting requirement for the crypto currency holder.
Example: Matthew has a wallet that contains upwards of $200,000 worth of Bitcoin. If the Wallet is being stored in the United States, then there is no form or offshore aspect to the wallet – and therefore it would typically not be considered a foreign account or require disclosure on your typical offshore disclosure forms (FBAR, FATCA, etc.)
IRS Limits the Subpoena
The IRS’ initial subpoena was over-burdensome and therefore not initially successful in forcing Coinbase’s hand. Thereafter, the IRS went back to the drawing board and limited the scope of the subpoena in order to try to facilitate its enforcement.
The Key Points of the IRS Enforcement Document:
In reviewing the enforcement document filed in November 2017, here are the main takeaways from the IRS’s position:
– Coinbase offers buy/sell trading functionality in 33 countries, with (according to its website) 5.9 million customers served and $6 billion exchanged in bitcoin.. By the end of2015, Coinbase was America’s largest platform for exchanging bitcoin into U.S. dollars, and the fourth largest globally.
– Based upon an IRS search, only 800 to 900 persons electronically filed a Form 8949 that included a property description that is “likely related to bitcoin” in each of theyears 2013 through 2015
IRS Specific Subpoena Requests
Request 1 – Registration Records
Account/wallet/vault registration records for each account/wallet/vault owned or controlled by the user during the period stated above limited to name, address, tax
identification number, date of birth, account opening records, copies of passport or driver’s license, all wallet addresses, and all public keys for all accounts/wallets/vaults.
Request 2- Due Diligence
Records of Know-Your-Customer diligence.
Request 3 – 3rd Party Agreements
Agreements or instructions granting a third-party access, control, or transaction approval authority.
Request 4 – Transaction Records
All records of account/wallet/vault activity including transaction logs or other
records identifying the date, amount, and type of transaction (purchase/sale/exchange), the post transaction balance, the names or other identifiers of counter parties to the transaction; requests or instructions to send or receive bitcoin; and, where counter parties transact through their own Coinbase accounts/wallets/vaults, all available information identifying the users of such accounts and their contact information.
Request 5 – Correspondence
Correspondence between Coinbase and the user or any third party with access to the account/wallet/vault pertaining to the account/wallet/vault opening, closing, or transaction activity.
Request 6- Statements
All periodic statements of account or invoices (or the equivalent)
What This Means for You?
At Golding & Golding, we’re not fear mongers. We do not try to scare people into considering offshore disclosure. But sometimes, in situations such as these — the facts speak for themselves.
Overall, the IRS has a skewered eye towards Bitcoin, due to the initial use being related to illegal websites such as Silk Road and the dark web. Moreover, if you have your Bitcoin in an anonymous wallet and it is being transferred to foreign accounts in which you either on the foreign account or utilized a foreign corporation/nominee company to receive the Bitcoin, chances of the IRS is going to be pursuing the trail of the money.
IRS Voluntary Disclosure
Depending on the facts and circumstances of your situation, you may be able to qualify for the offshore disclosure or domestic disclosure programs. If you only have undisclosed domestic income as a result of utilizing Bitcoin, you may consider entering the domestic voluntary disclosure program.
Golding & Golding, A PLC
We have successfully represented clients in more than 1000 streamlined and voluntary disclosure submissions nationwide, and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.
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