The cryptocurrency company has lost a court action against the US Internal Revenue Service. The Northern District of California Court approves the taxmen’s claim to see all Coinbase transactions for 2014 and 2015.
The judge Jacqueline Scott Corley considered the arguments of the tax authorities that some American residents could evade taxes using Coinbase services as valid.
“Based upon a review of the Petition and supporting documents, the Court has determined that the “John Doe” summons to Coinbase, Inc. relates to the investigation of an ascertainable group or class of persons, that there is a reasonable basis for believing that such group or class of persons has failed or may have failed to comply with any provision of any internal revenue laws, and that the information sought to be obtained from the examination of the records or testimony (and the identities of the persons with the respect to whose liability the summons is issued) are not readily available from the sources,” the court order reads.
The information about internal transactions between Coinbase accounts is accessible in the public blockchain of bitcoin. However, the system contains no data necessary to identify wallet owners in real life – the information only available to Coinbase (up until now).
In November 2016, the IRS sent a summons to the company requiring access to all transaction data including personal information on Coinbase users for the period from 1 January 2013 to 31 December 2015. “Transactions in virtual currency are taxable just like those in any other property," IRS Commissioner John Koskinen commented to CoinDesk.
In turn, Coinbase announced it would appeal against the request in a court. “As we previously stated, we remain concerned with our US customers’ legitimate privacy rights in the face of the government’s sweeping request,” the company said.
The California court ruling may become crucial for the future of US cryptocurrency industry and for Coinbase in particular. The fact that the country’s tax authorities can oblige every company to disclose personal data may significantly undermine the confidence in US-based cryptocurrency companies.
“Americans would be shocked if the IRS asked a financial institution in good regulatory standing to turn over the names, addresses and shopping histories of millions of customers just because the IRS thought there might be some tax cheats among them,” Jerry Brito, executive director of non-commercial organisation Coin Center, wrote in an editorial.