Legitimate? IRS Defends Coinbase Customer Investigation in Court Filing

The U.S. Internal Revenue Service (IRS) has filed new court documents in its long-running lawsuit against cryptocurrency exchange startup Coinbase, public records show.

As previously reported by CoinDesk, the IRS is seeking to identify potential tax avoiders, years after it first moved to begin taxing bitcoin as a kind of intangible property.

The tax agency had been given a September 1 deadline to issue its arguments in support of a narrowed summons for customer information between the years 2013 and 2015, and has submitted multiple filings, according to PACER. These include responses to outside advocacy groups that have moved to block the court effort with arguments of their own.

In response to Coinbase’s petition to block the summons, the agency attacked the notion that it was looking to enforce it “for research or public relations reasons,” calling the summons part of a “legitimate” investigation.

Lawyers for the agency wrote:

“The IRS sought and issued the summons to Coinbase because it suspects there is a tax compliance problem with U.S. taxpayers using virtual currency and it is duty-bound to investigate issues of tax non-compliance − not for research or any public relations purpose. Nevertheless, the summons is not made unenforceable because the IRS will benefit from the additional educational aspect of the summons and any research it may yield.”

Elsewhere in the document, the IRS reiterates a key argument made earlier this year, stating that it believes Coinbase could have information regarding potential tax avoiders.

“The United States has offered evidence that, based upon the information available to the IRS there appears to be a reporting gap between the number of virtual currency users Coinbase claims to have had during the summons period (500,000) and U.S. bitcoin users reporting gains or losses to the IRS during the summoned years (807, 893, and 802),” the filing states.

Justice statue image via Shutterstock

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has ownership stake in Coinbase. 

The full opposition filing to Coinbase’s petition can be found below:

UNITED STATES’ RESPONSE TO COINBASE INC. by CoinDesk on Scribd