In mid-November last year, the IRS sought access to bitcoin exchange Coinbase’s user records as part of an investigation into alleged tax violations connected to digital currency. Coinbase user and attorney Jeffrey K. Berns filed a motion in federal court seeking to block the IRS from accessing personal, transactional and security data.
Until recently, Coinbase had yet to make a legal move on its own behalf. But last week, according to a report, Coinbase filed court papers to support the challenge to the IRS demand, saying the agency’s request is too broad. If the judge allows Coinbase to intervene, the bitcoin exchange said it will offer up additional arguments to augment Berns’ original case.
Coinbase CEO Brian Armstrong wrote in a blog post: “If the IRS were to approach Citibank, Fidelity or PayPal and ask them to turn over all customer records, they would rightfully push back. And I feel we have the same obligation to do so … Other digital currency exchanges operating abroad (while still serving U.S. customers) are unlikely to demonstrate a similar commitment to working with the IRS, yet we were the only company (as far as I know) to receive a subpoena for all customer records.”
According to Armstrong, Coinbase estimates that the upcoming legal fight could cost the exchange anywhere between $100,000 and $1 million. He wrote that the money would be better spent on creating new products or hiring additional employees.
Additionally, Armstrong proposed that Coinbase could work with the IRS by adopting third-party tax reporting mechanisms, like the one currently used by brokerage firms — the 1099-B form. If this were to play out, Coinbase would become the first bitcoin exchange to adopt such a structure.
Coinbase is the largest virtual currency exchange in the U.S. It is licensed in 34 states, the District of Columbia and Puerto Rico and operates in 32 countries worldwide.