Cryptocurrency owners with Coinbase accounts beware. If you hadn’t already heard by now, then consider this your fair warning. The IRS is coming after Coinbase accounts in search of possible tax cheats. Coinbase is the largest U.S. platform for exchanging cryptocurrency, including Bitcoin, with close to six million customers. The good news, this doesn’t apply to everyone with a Coinbase account.
More Than 14,000 Accounts Affected
It will only apply to those accounts that had at least one transaction of $20,000 or more between 2013 and 2015. That amounts to 14,355 account holders. The crypto exchange says there were 8.9 million transactions that fell into that category during that time period. For months the IRS and Coinbase have battled over the release of these accounts. In February, Coinbase finally announced that it would comply with a court order to turn over the accounts.
Are Taxpayers Neglecting Virtual Profits?
According to the court filing, the IRS claims that: “There has been an explosion of billions of dollars of wealth in just a few years from Bitcoin, a significant amount of which has no doubt accrued to United States taxpayers, with virtually no third-party reporting to the IRS of that increase in income.”
IRS Says Bitcoin Users Knowingly Skipping Taxes
The tax agency has also argued that crypto users “have openly acknowledged they consider using Bitcoin in order to avoid tax reporting requirements.” The IRS also alleged: “only 800 to 900 taxpayers reported gains related to Bitcoin in each of the relevant years.” However, the agency noted: “more than 14,000 Coinbase users have either bought, sold, sent or received at least $20,000 worth of Bitcoin in a given year.” The court filing says that “suggests that many Coinbase users may not be reporting their Bitcoin gains.”
Cryptocurrencies Fall Under Notice 2014-21
According to the IRS, Notice 2014-21 provides that virtual currencies are property for tax purposes. For tax purposes, capital gains and losses from property transactions are reported on From 8949. This information applies to virtual currency and it must be attached to Schedule D, Capital gains and Losses. The District Court ruled that the IRS summons was legitimate in that its purpose is to investigate Coinbase account holders who might have skipped out on paying their federal taxes from their crypto profits.
Coinbase Had no Choice
Coinbase fought the summons for several months, and they were able to successfully limit the original summons. In that, the IRS had requested all records from Coinbase, including any third party info related to Bitcoin transactions for all account holders between 2013 and 2015. The Court eventually denied that request, calling it too broad, but did allow the IRS to check on accounts with transactions of at east $20,000. Coinbase has informed its account holders that it “is unable to provide legal or tax advice.” The crypto exchange did advise users to “refer to its Taxes FAQ for more information on taxes and digital currency.”
Contact GROCO for Help
If your account does fall into this category and you need tax advice then you should contact GROCO for help. Click here or call 1-877-CPA-2006.