Coinbase is saying the Internal Revenue Service went too far in its demands of the popular bitcoin exchange, and it’s pushing back in court to protect the 500,000 active Coinbase users who would be affected by the summons.
The investigation began last year, at which time officials demanded that Coinbase turn over information for every single one of its users. In a letter sent May 17, senior Republicans in Congress suggested the IRS was overstepping its powers.
The IRS says only 802 Coinbase users filed a tax form related to bitcoin in 2015, suggesting that many people failed to declare capital gains connected to bitcoin. However, many users have not sold any bitcoin at all through the platform, while others hold only a small amount, and the IRS is sweeping them in with the offenders.
“Based on the information before us, this summons seems overly broad, extremely burdensome and highly intrusive to a large population of individuals,” says the letter.
According to the letter, the IRS stated in 2014 that digital currencies would be treated as properties for tax purposes, yet two years later, in September 2016, said it still had not developed a comprehensive digital currency tax strategy. Without a strategy, it says, the IRS has little grounds for its demands.
But that didn’t stop the tax agency from issuing a summons to Coinbase requesting all records of American customers who had conducted transactions in digital currency during 2013, 2014 and 2015.
The request would require production of “millions of pages” of records containing sensitive personal information for customers who mostly engaged in less than $10,000 worth of activity over the entire period, said the letter.
The authors wrote that this type of “John Doe Summons” can only be issued if the IRS has a “reasonable basis” for believing the subjects had failed to comply with tax laws. They argue that not all Coinbase customers should be investigated for the possible wrongdoing of a few.
The letter is signed by Senators Orrin G Hatch (chairman of the Senate Committee on Finance), Kevin Brady (chairman of the House Committee on Ways and Means) and Vern Buchanan (chairman of the House Committee on Ways and Means Oversight Subcommittee).
The Senators requested a response by June 7.