14,000 Coinbase Customers Could Be Affected by IRS Tax Summons

Digital currency exchange startup Coinbase is pushing back against a renewed court effort by the Internal Revenue Service to obtain information on some of its customers.

Earlier this month, the IRS sought to narrow the scope of its investigation of the startup's customers after running into opposition from both Coinbase itself as well as several of its customers. The dispute dates back to November, when the tax agency first went to court in a bid to obtain user records from Coinbase for the period between 2013 and 2015.

Ultimately, the IRS told the court that it would limit its investigation to customers who have conducted at least $20,000 in business during those years. Yet in a July 27 court filing, Coinbase argued that request remains overly broad, amounting to little more than a "fishing expedition" at the expense of lawful taxpayers rather than a serious investigative effort.

Indeed, one angle of the argument against the IRS summons is that the tax agency is primarily interested in pushing back against criticism of its digital currency policies.

Lawyers for Coinbase wrote in their opposition filing:

"...the IRS, under pressure from critics in Congress, the General Accounting Office, and the Treasury Department, all of whom have called on the IRS to develop better policies, rules, data, and procedures with regard to digital currency tax reporting, decided to issue a John Doe summons to Coinbase in an attempt to show the critics that the IRS was taking 'tough' action rather than continuing to ignore the issue."

Coinbase goes on to say that, under the narrowed summons, approximately 14,355 accounts would be subject to the data request.

According to a supplementary filing attributed to Coinbase's internal audit chief Jeff Cartwright, 6,178 of those accounts "had a cumulative sell, send and receive (excluding buys) of less than $60,000 between 2013 and 2015."

The startup ultimately requested that the court reject the tax agency's petition to enforce the summons. Further, Coinbase is seeking an evidentiary hearing, criticising the IRS for what it believes is a lack of evidence that its customers are trying to avoid their taxes.

"The Government has now ‘narrowed’ its requests, providing no evidence to support its contentions and no explanation for why it has done so," the startup’s attorneys wrote.

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Coinbase.

The full court filing can be found below:

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