Lessons Learned From Coinbase’s IRS Drama

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Crypto enthusiasts are on alert — once-reliable exchanges can no longer be counted on to keep users’ information safe. To be fair, this is not entirely the fault of the exchanges themselves; when the IRS comes knocking, they must respond. Such was the case when the IRS approached Coinbase in hopes of securing information from the exchange’s full user base. Read on to learn how Coinbase responded and what this episode can tell us about the future of crypto and taxes:

What Did the IRS Request? How Did Coinbase Respond?

The IRS first sought information from Coinbase in 2016. Specifically, the agency requested that Coinbase turn over information on all those who had used the exchange to trade cryptocurrencies such as bitcoin between 2013 and 2015. Initially, Coinbase resisted this order. Following a contentious case, the United States District Court for the Northern District of California ruled that the exchange must release identifying records for users with transactions exceeding $20,000 in any given year — but, as initially requested between 2013 and 2015. Coinbase ultimately complied, therein impacting at least an estimated 13,000 users.

What Does the Coinbase Situation Tell Us About the New IRS Approach to Crypto?

If there is any takeaway from Coinbase’s recent issues, it’s that the IRS is willing to go further than before in its effort to keep crypto traders in check. What’s more, even if crypto exchanges initially resist, federal court action may eventually force them to supply sensitive information about users’ trading habits and proceeds. Ultimately, this means that crypto traders will need to be far more conscientious about how they conduct and track virtual currency transactions, as the potential for IRS action is far greater than in the past.

Whether you were impacted by the aforementioned Coinbase situation or are preparing for the next big controversy, you can benefit from the support of a tax expert. Contact the Highland Tax Group today to learn more about your options.