Second - Also this month, the IRS filed a petition in District Court to obtain two years of records (2014 and 2015) from Coinbase (U.S. v. John Doe, No. 3:16-cv-06658-JSC (ND CA 11/17/16)). The 16-page petition explains how virtual currency works and what Coinbase does. The IRS believes that some of its customers have not complied with the tax laws. See Stan Higgins, “The IRS is Seeking Data on Coinbase’s Bitcoin Customers,” CoinDesk, 11/18/16.
The IRS notes the following bitcoin usage: “As of January 2016, it was reported that more than 100,000 merchants globally were accepting bitcoin payments with businesses such as Overstock.com, Home Depot, DirectTV, Dell, Microsoft, Amazon, and Expedia topping the list. By Fall 2016, the number of merchants is forecast to grow to 150,000. With bitcoin, a user can buy webhosting services, cars, homes, and even pizza and manicures. In 2015, there were 125,498 bitcoin transactions per day. Using the total bitcoins traded in 2015 and the 2015 bitcoin average price, I calculated the 2015 annualized transaction value in U.S. dollars to be $10,116,817,608.”
IRS concerns include no information reporting for the transactions, articles about people using bitcoin to avoid tax reporting, exchanging money for virtual currency through foreign banks, and use for crimes including money laundering.
Update - The District Court granted the summons on 11/30/16. Also see the US Department of Justice press release of 11/30/16.
For more on virtual currency and the blockchain, see my website.
What do you think? Any virtual currency tax issues you see?