
Coinbase and the IRS - barmstrong
https://medium.com/@barmstrong/coinbase-and-the-irs-c4e2e386e0cf#.238vo9q3v
======
ChuckMcM
I think you are fighting the good fight Brian!

In tin hat mode, its possible that the subpoena is actually being driven by
the justice department not the IRS. As you point out there are a number of
less invasive ways of insuring tax compliance but there are not better ways
for unwrapping large number of bitcoin transactions involved in ransomware or
other extortion or criminal activity. We saw from the MtGox fiasco that when
their entire transaction record for all clients was analyzed it identified not
only internal corruption but a variety of schemes being used to manipulate or
defraud.

Let's assume that Justice has the full transaction records for one or more of
the non-US exchanges, by adding all of your records to the mix it would give
them the visibility they need to unwind a lot of stuff.

As I understand it, when you make the motion to quash you can compel them to
tell you exactly how they were going to use the data. Don't let them be
evasive on that point.

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divbit
I used bitcoin quite heavily in 2016 through the 'shift' card that coinbase
offers, and I think I'm going to hold off on further use in general until tax
stuff is more clear / straightforward - I've made an effort to pay the bitcoin
taxes correctly in previous years, but not personally being an accountant, had
to hire one to check all the stuff (I'm not super rich, so this is a little
bit annoying). The point of this comment is that I think it is a good thing
coinbase is trying to standardize some reporting method - I also agree with
the '1099 for each cup of coffee bought with bitcoin' seems a little bit
much...

~~~
barmstrong
We make it as easy as we can with the cost basis report
[https://support.coinbase.com/customer/portal/articles/149648...](https://support.coinbase.com/customer/portal/articles/1496488-how-
do-i-report-taxes-)

~~~
divbit
Thanks - yeah, that is pretty helpful.

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tga
For some negative context on Coinbase, take a look at
[http://reddit.com/r/coinbase](http://reddit.com/r/coinbase).

It looks like, despite the shiny front and claims, they are still not a solid,
trustworthy company, even though they play with a lot of others' money. In
particular, the mechanics of their transactions are not obvious (e.g. long
wait times), and their customer service is subpar, making some customers feel
scammed, with no recourse.

~~~
pmorici
People like to hate on Coinbase because they took a stance on the block size
debate in the past that was at odds with powerful people in the Bitcoin world
who also happened to control the main forums for discussing Bitcoin. I think
most of the "problems" people have are just a thinly veiled attempt at a smear
campaign. At this point they are the the standard in Bitcoin for what a
trustworthy and ethical company should be. They have got to hold the record
for longest period in Business w/o losing massive amounts of customer funds to
fraud or theft.

~~~
chx
Given that Bitcoin isn’t the future of money — it’s either a Ponzi scheme or a
pyramid scheme
[https://www.washingtonpost.com/news/wonk/wp/2015/06/08/bitco...](https://www.washingtonpost.com/news/wonk/wp/2015/06/08/bitcoin-
isnt-the-future-of-money-its-either-a-ponzi-scheme-or-a-pyramid-scheme/) it's
somewhat hard to be "trustworthy" and "ethical". Are you rating the competing
mob families on the trustworthy and ethical scale too?

~~~
cloakandswagger
I'll never understand the people who are rabidly anti-Bitcoin. Can anyone
enlighten me? Are they threatened by an alternative to traditional fiat
currency, or have they just read so much propaganda (like that WaPo article)
that they're completely committed to it now?

~~~
chx
I am mad at the hype leveled at Bitcoin because ordinary people lose so much
money with it. Not just because of the inherently fraudulent nature of Bitcoin
but because you put something that can be very easily exchanged into money on
insecure computers. Every computer is insecure, mind you but people don't
really know (or care!) what they are in for until they are hit.

~~~
pmorici
No offense but you seem to only have a surface understanding of Bitcoin.

I'm not sure what you mean by ordinary people lose a lot of money with it but
ordinary people have surly lost more money in the stock market than they have
in Bitcoin. Saying Bitcoin is inherently fraudulent is simply false.

On the topic of computer security. If you are serious about your Bitcoin's
security there have been secure hardware wallets available for several years
now that are easy to use and eliminate the chance of theft from hacking. They
have come down in price to the point where they are very affordable.

The Ledger Nano S for example is $50. It's also super easy to use and never
exposes your private key to your computer so it can't be stolen even if your
computer is infested with Bitcoin stealing malware. Trezor and Keepkey are
similar devices.

------
galen211
fwiw, Coinbase wouldn't be the first financial institution to challenge a John
Doe Summons. The IRS issued one to UBS in 2008
([https://www.justice.gov/archive/tax/txdv08584.htm](https://www.justice.gov/archive/tax/txdv08584.htm)).
UBS claimed it couldn't comply with the summons without breaking Swiss bank
secrecy law, and the Dept of Justice ultimately came to an agreement directly
with the Swiss government (under an existing tax treaty) to get the records it
was seeking. Simultaneously, the IRS set up a voluntary disclosure program for
Americans to pay a penalty on back taxes and avoid criminal prosecution. The
amount of back taxes owed on bitcoin capital gains is probably less than the
amount being sheltered by the Swiss in 2008, but it's not nothing.

------
em3rgent0rdr
These IRS witch hunts do little but inspire FUD about bitcoin, thus hampering
widespread acceptance, and keeping the US financial system in a bygone era.

~~~
drvdevd
Also, is there any idea about how much money the IRS could possibly recover
through bitcoin? Is bitcoin even a significant source of loss for the IRS as
compared to say, _cash_?

~~~
chris11
I'd say one advantage of bitcoin is the lack of reporting requirements if you
wanted to move money without letting the IRS know. So I could see how bitcoin
could be a loss for the IRS.

~~~
drvdevd
Right, but the IRS has already classified bitcoin and provided guidance as to
reporting requirements [1]. This situation isn't much different to cash wages.
You can in theory not report any of it, but then you're breaking essentially
the same law.

My question is: don't losses from unreported cash wages vastly outnumber
losses from unreported virtual currencies and isn't that likely to remain the
case for the forseeable future?

With this sort of action, is the IRS signaling a belief that virtual
currencies will replace cash for average citizens in the near future?

[1] [https://www.irs.gov/uac/newsroom/irs-virtual-currency-
guidan...](https://www.irs.gov/uac/newsroom/irs-virtual-currency-guidance)

~~~
jsjohnst
I'm not sure there is the massive "losses from unreported cash wages" you seem
to imply there is.

There's two main forms of "cash wages" in the US. One being wait staff, the
other being "under the counter pay" to workers, generally labor intensive.
Wait staff who regularly under report their tips are easily identified by the
IRS. In the second case, these generally aren't well paid jobs (thus wouldn't
generate much, if any, tax revenue).

~~~
vajrabum
There's underreporting and tax evasion in almost any business which can be
conducted on a cash basis. I know of a heating air-conditioning contractor
(now deceased I believe) who regularly got customers to write checks directly
out to him and take those to a check cashing business. He was very clear he
was doing this to evade taxes.

------
hawkice
Bitcoin is a technology defined by its community. That's why they made a
public comment about a pending legal issue - to defend their reputation within
that community. A community that, for instance, leads a HN discussion to be
>50% arguments about whether government of any type is a bad idea. They'd get
even more customers of they refused to comply with any subpoena, but then
they'd be unable to interface with modern banking.

~~~
drvdevd
Good point. Coinbase by nature has to walk a line between two communities very
much at odds with each other.

There is an onus on the bitcoin community to get more people to accept bitcoin
directly as payment. Companies like coinbase could help that process along in
theory, but they'll have to keep walking this line while they grow.

------
beardog
This is a good move for Coinbase, i'm glad they are defending their users.
They are right that it is overly broad. I don't see how IP addresses and
customer support transcripts are a matter for the IRS.

~~~
hawkice
IP addresses could help them identify people trying to get away with smurfing
by setting up multiple accounts [see:
[http://www.investopedia.com/terms/s/smurf.asp](http://www.investopedia.com/terms/s/smurf.asp)],
and customer support for banking is typically about reconciliation -- if
coinbase has any mutable records in their databases (likely) that'd be the
only place to find the original information -- if they don't get it in the
first court order they won't have a super good reason to ask for it later (a
judge will ask them why they think the new order is needed, and if they
suspect the information supplied to be false -- if they ask for it immediately
it can be used to create a more detailed picture of how certain accounts
developed).

Not saying the order is justified, merely that the people asking for it want
it for actual reasons.

------
modeless
Speaking as a Coinbase user I would _love_ it if they could just send me a
1099. It would make filing my taxes a whole lot easier.

~~~
scottcanoni
Coinbase offers a (beta) cost basis for taxes report via
[https://www.coinbase.com/reports](https://www.coinbase.com/reports)

------
rlp10
> For tax purposes, gains on property do not have a de minimis exemption like
> currency. This would mean that even the sale of a small amount of digital
> currency (say to purchase a cup of coffee) would generate a 1099 form.

Does that mean you could write a program that created virtual currencies and
transactions between them (along with their required 1099 forms) in order to
troll the IRS by submitting TBs of data?

~~~
throwaway5752
You could do a lot of things, but antagonizing the IRS would not be a smart
one.

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joering2
They estimate it might cost them up to $1MM. Question - if IRS lose, can they
recover most of legal fees??

~~~
eli
Very unlikely.

[https://en.m.wikipedia.org/wiki/American_rule_(attorney%27s_...](https://en.m.wikipedia.org/wiki/American_rule_\(attorney%27s_fees\))

~~~
joering2
But it seems like frivolous lawsuit - its a blanket request for all data.

------
sneak
They talk about having "invested" in the tremendous waste of time and effort
that is "compliance", simply to enforce ridiculous jurisdictional fiefdoms'
opinions about who you can or can't send your money to.

Imagine a world where this terrible waste weren't mandated by the men with
guns. Imagine a world where cryptocurrency executives didn't try to spin this
huge coerced waste as a positive.

This is the reason cryptocurrency was invented. Shapeshift is the right
direction. Coinbase is the wrong one.

~~~
icebraining
And when I start getting paid in Dogecoin, I'm sure Shapeshift will be very
useful. Right now, I'm paid in government controlled currency, and I don't see
why efforts to get people to trade it for cryptocurrency shouldn't be
applauded by cryptocurrency enthusiasts.

------
vosper
Offtopic, but why would a CEO make an important (for his company and
customers) post like this on medium.com? Why isn't this hosted on
blog.coinbase.com or something? I know that Medium is a popular platform these
days, but I think it weakens the branding of any company or individual to be
posting there.

~~~
wcchandler
Seriously? As a user of their service I'm glad to see them offload an
extraneous expense to someplace that's better equipped for the service
provided.

After evaluating this situation further, I felt further comfort in knowing
there's an added level of authenticity to the post. They could have signed it
with a GPG key which would've been nice, but not only would their core site
have needed to have been comprised but also their medium account in order to
deliver this news. Should this have been a security incident I would have been
comforted by these additional ID confirmations.

~~~
vosper
Most companies don't regard brand-building and SEO as an extraneous expense.
I'm sure Coinbase has spent their share of money on promotion. I'm also sure
they could host a blog, or have someone else do it for them (does Medium have
a self-hosted or custom domain option?)

~~~
jpindar
They do have a blog at blog.coinbase.com

------
RichardHeart
tldr; CEO: "Coinbase and the IRS have (I believe) a shared goal to ensure all
U.S. customers pay their taxes. I believe a good option would be to use the
same third party reporting mechanism that brokerage firms like Fidelity and
Charles Schwab use today: the 1099-B form. We’d ideally like to see that
structure applied evenly to all companies in the industry, but even if we’re
required to go first, we’re ready to implement 1099-B reporting. With this
potential solution, Coinbase (and other virtual currency exchanges) would
issue a 1099-B at the end of the year to all U.S. customers, and send a copy
to the IRS. This would make it easy for users of virtual currency to pay their
taxes without violating their privacy."

