IRS Chomping at the Bit(coin)

If you follow geeky things as I do, you will know of the IRS subpoena demanding the Coinbase records of all U.S. customers who traded in virtual currency between January 1, 2013 and December 31, 2015. The move is considered by many to be overbroad, implying that many Coinbase traders in virtual currency are tax cheats.  
 
In the subpoena, the IRS cited its “suspicion” that the group “includes U.S. taxpayers who are not complying with the law.”  Many taxpayers , both inside and outside of the group, see this as an invasion of privacy, implying guilt by association
 
Coinbase is fighting back, as expected.  To put it into perspective, imagine the pushback the IRS would get IF it were allowed to subpoena the complete records of all Fidelity customers who placed trades over a 3-year period based on a suspicion that SOME customers may not be complying with tax law.
 
Coinbase has received IRS subpoenas in the past, and has always complied.  They have already put processes in place to boost tax compliance, and wonder why they were the only virtual currency trader singled out by the IRS. It’s a fair question.
 
Coinbase has proffered issuance of 1099-B tax forms to all traders above a certain limit, similar to those issued by brokerage firms.  The IRS seems to be on board with this idea, with the caveat that the threshold for issuing a 1099-B not be made public.  It’s an obvious scare tactic.  
 
For those who traded in bitcoin between 2013 and 2015, there are three options:
  • If they reported, it’s all good.
  • If they didn’t report, they can amend to include the transactions.
  • If they didn’t report, they can ride it out and hope they fall below the mysterious IRS threshold.
If an agreement is reached between Coinbase and the IRS, I see mandatory bitcoin reporting in the near future.