District Court Authorizes IRS Summons of Coinbase's Customer Records in Tax Evasion Probe

Dec. 31, 2015. The IRS sought Coinbase's records after it found instances of tax evasion involving the firm's customers. Federal authorities aren't claiming the company had any knowledge tax evasion was taking place, the IRS said in its petition. Records sought in the summons include user profiles, user preferences, user security settings and history, user payment methods and other information about users' funding sources. A “John Doe” summons doesn't require the agency to identify a specific person but simply an ascertainable group or class of people, as in cases involving tax shelters. Based on the petition, Judge Jacqueline Scott Corley ruled (in Pacer) the IRS' summons of Coinbase “relates to the investigation of an ascertainable group or class of persons, that there is a reasonable basis for believing that such group or class of persons has failed or may have failed to comply with any provision of any internal revenue laws, and that the information sought to be obtained from the examination of the records or testimony (and the identities of the persons with respect to whose liability the summons is issued) are not readily available from other sources.” Given the rising use of virtual currencies, “some have raised questions about tax compliance,” said DOJ Tax Division head Caroline Ciraolo in a news release. “Tools like the John Doe summons authorized today send the clear message to U.S. taxpayers that whatever form of currency they use -- bitcoin or traditional dollars and cents -- we will work to ensure that they are fully reporting their income and paying their fair share of taxes.” Coinbase said in a statement it's “aware of, and expected, the Court’s ex parte order today. We look forward to opposing the DOJ’s request in court after Coinbase is served with a subpoena. As we previously stated, we remain concerned with our U.S. customers’ legitimate privacy rights in the face of the government’s sweeping request.”