IRS acting aggressively in pursuit of bitcoin customer data

Here are a couple of immediately notable points regarding the IRS.

First, the agency likes — indeed, insists upon — transparency regarding virtually everything that remotely touches the tax realm.

In one recent matter involving the reporting and payment of taxes, the IRS made strong document turn-over demands it said were necessary to gain visibility “into a space where [the agency] is already moving about somewhat in the dark.”

And that second point: When the IRS is in the dark, it generally has no problem at all turning the lights on quickly, and at high wattage.

That empowerment is buttressed by strong historical supports for the agency that go back to the virtual founding of the United States and by tandem judicial support confirming agency prerogatives.

As one federal judge noted recently in response to an IRS demand for taxpayer information: “I have to give tremendous discretion to the agency as to how they investigate.”

In that case, what the IRS is seeking to investigate are the records of many consumers who transact in so-called “bitcoin,” an alternative virtual currency. The agency views bitcoins as it does many other assets, to wit: Make money on purchases and pay taxes on gains.”

The IRS believes that is not routinely happening, and it seeking to compel the cryptocurrency company Coinbase to turn over customer records. Coinbase is resisting, calling the demand “a massive fishing expedition.”

Who will win?

The cited judge above seems to be leading in favor of the IRS, although her comments indicate that reasonable limits will attach to any document release. Reportedly, the court will allow Coinbase the opportunity to appeal an adverse decision before any final order is dictated that spells out the details of what must released.