The U.S. Internal Revenue Service (IRS) has put bitcoin anonymous users under the microscope as they hunt down possible tax evaders.
According to the New York Times, the US IRS has directed Coinbase, the largest Bitcoin exchange in the United States, to turn over the identity and full transaction history of millions of customers who bought virtual currency from the company from 2013 to 2015.
Under the rules set by regulators, companies engaged in the buy and sell Bitcoins are required to record the identities of people who buy and sell virtual currency on their platforms.
Coinbase, a start-up based in San Francisco with funding from several leading venture capital firms, was put under intense scrutiny after tax agents uncovered found three cases in which people were using Bitcoin to evade taxes.
In a document filed on Thursday, IRS agent David Utzke pointed out that he was now hot on the trail of the two companies – which were not named in the document – that were buying Bitcoin and misreporting them with the I.R.S. as technology expenses.
He claimed that both of the companies were customers of Coinbase.
“The risk/reward ratio for a taxpayer in the virtual currency environment is extremely low, and the likelihood of underreporting is significant,” Mr. Utzke wrote. “The characteristics of virtual currencies could enable them to replace traditional abusive tax arrangements as the preferred method for tax evaders.”
The IRS suspects that more people are using Bitcoin for similar purposes as a result of their discovery and due to the cryptocurrency’s relatively high level of anonymity
“The IRS not only has suspicion that the John Doe class includes U.S. taxpayers who are not complying with the law — it knows that the class in the past included such violators, and very likely includes others,” the document, called the John Does summons, said.
But Coinbase quickly cried foul over what it described as a “fishing expedition” of the US IRS since the financial privacy rights of its customers is at stake. It pointed out that this is the first time that they received a request for broad information.
The company vowed to face them head-on in a legal arena.
“We want to work with law enforcement — that’s generally our policy,” the company’s head legal counsel, Juan Suarez, said Friday. “But we can’t tolerate sweeping fishing expeditions. We are very concerned about the financial privacy rights of our customers.”