Increasing numbers of businesses and individuals across the world are using Bitcoin, a form of digital currency. Coindesk, a company that analyzes digital and virtual currency, states that on average, there are more than 200,000 Bitcoin transactions each day in 2016. This is roughly twice the number of Bitcoin transactions that took place in 2015.
Bitcoin enthusiasts point out that this form of currency is private, not controlled by a central bank, and is not prone to inflationary pressures. Of course, for many of these same reasons, the IRS is looking carefully at Bitcoin transactions. For tax purposes, virtual currency is subject to taxation in the same manner as traditional currency.
The Latest Salvo in the Battle Against Bitcoin
The IRS filed a subpoena in a California federal district court requesting that Coinbase, a website for Bitcoin transactions, provide financial and transactional information about users. Specifically, the IRS is seeking information on accounts for Bitcoin users in the years 2013 through 2015.
Jeffrey Berns, a Los Angeles attorney, filed a motion to deny the IRS's request. Mr. Berns, who transacted on Coinbase during the time frame sought by the IRS, contends that the request is far too broad.
Do Three Cases of Tax Evasion Give the IRS the Right to Look at Millions of Documents?
The IRS notes it has already identified three Bitcoin transactions that were made with the purpose of evading taxes. As there are roughly one million American Coinbase users from 2013 to 2015, Berns claims that the IRS's request is far too broad, and could violate the privacy of legitimate Bitcoin users.
On the other hand, the IRS has extremely broad powers. As long as the information is "relevant to a legitimate investigative purpose" and not meant to harass a taxpayer or force a taxpayer to settle a dispute, the IRS can obtain documentation. Many believe that Berns will have an uphill battle convincing the district court to reject the IRS's request. A hearing on this case will take place on January 17, 2017. The court's ruling will either lead to wealth of information for the IRS, or will be a significant win for Bitcoin users.
Anyone facing the IRS can realize substantial benefits by working closely with experienced tax lawyers. For decades, individuals and businesses have relied on the attorneys of Goldburd McCone. While based in Midtown Manhattan, the firm maintains a full-service tax practice for a global clientele.