Coinbase Customer Doubles Down on Legal Action Against IRS

A Coinbase user resisting an IRS request for customer data has refused to abandon the fight, but experts say the tax agency's actions were expected.

AccessTimeIconDec 30, 2016 at 1:10 p.m. UTC
Updated Sep 11, 2021 at 12:50 p.m. UTC
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The lawyer fighting a one-man battle against the IRS on behalf of thousands of Coinbase customers has not been swayed by the tax agency's efforts to appease him.

Instead of pacifying Coinbase user Jeffrey Berns, the IRS’s change of tack seems to have made him more determined to carry on the fight.

In response to a motion to intervene on behalf of Coinbase users filed by Berns via his law firm, Berns Weiss, the IRS yesterday submitted its own amendment to its request for the personal information of thousands of the firm's customers.

Since Berns had revealed himself as a Coinbase user in his motion to quash the IRS request for customer information, the tax agency yesterday said it no longer wished to obtain his data from the company.

But in a statement sent to CoinDesk, Berns’ law firm argued that the IRS is looking for a whole lot more than just customer names, and that it has "failed to explain" why it withdrew the lawyer's name from the summons (even though that means it will no longer be able to obtain Berns' personal and financial information).

Berns Weiss said in the statement:

"The IRS's willingness to withdraw the summons as to Mr Berns only because it is now aware of his identity makes it clear that the IRS does not have a legitimate purpose in seeking substantial personal and financial information concerning approximately 3 million Americans."

The so-called "John Doe" summons (filed in November) requested information on any US taxpayer who between 2013 and 2015 conducted transactions in a "convertible virtual currency" via the exchange.

Coinbase confirmed to CoinDesk that, while the total number of global accounts is 3 million, not all of them fall into the scope of the IRS request. The cryptocurrency exchange indicated it is not currently sharing the exact number of potentially impacted accounts.

In the statement sent to CoinDesk, Berns Weiss also argued that the IRS has not demonstrated the basis for such an "unprecedented" summons, adding that it will "continue to vigorously seek justice for all Coinbase customers".

'Fear and intimidation'

Whether this request proves to be "unprecedented", it is not wholly unique. In fact, the IRS has a history of using high-profile cases to make an example of alleged lawbreakers, according to bitcoin tax accountant Daniel Winters, who has written extensively on the case.

In conversation with CoinDesk, Winters recalled the widely publicized IRS cases against Wesley Snipes and Willie Nelson as examples of how it makes the most of its resources.

"The IRS has a limited budget for enforcement," said Winters. "So they rely on fear and intimidation because they don’t have the resources to go after everyone."

Founder and CEO of blockchain intelligence service Libra Jake Benson agrees that the IRS's action was expected. In fact, Libra's first tool, LibraTax was designed to help cryptocurrency exchange users remain compliant to IRS demands on traditional exchanges.

Historically, exchanges trading more traditional assets have been legally required to submit Form 1099-B on behalf of their customers, clearly explaining the net gains and losses to the IRS.

But cryptocurrency exchanges, so far, are not required to make the same filings on their users' behalf.

Benson told CoinDesk:

"By choosing to not provide 1099-B reporting to customers or the IRS, Coinbase and other similar exchanges are exposing themselves to a confrontation with the IRS regarding the interpretation of these rules which can end in new rules, fines, and customer frustration."


Going further, Winters argued that the tax agency's reaction is outsized in this context, and perhaps a little misguided.

According to Winters – who is the president of Global Tax Accountants, LLC, and a chair of the Wall Street Blockchain Alliance tax and accounting committee – laundering money with cryptocurrency like bitcoin is much less efficient than using traditional financial institutions.

"The amount of money you can launder through a bank is vastly more than you could ever do by running your transactions through multiple different wallets," he said.

Instead, he believes the IRS is simply overcompensating in response to the publication of a report prepared by the Treasury Inspector General for Tax Administration.

Issued in November, it found "little evidence" that the IRS had made progress in developing more cohesive strategy since declaring cryptocurrency an asset almost three years ago.

Although the Coinbase case has managed to obtain a reasonable amount of coverage via industry media outlets and at least one mainstream business publication, Winters argued that if the IRS had filed such a summons for information on a bank’s clients, the reaction would be much more extreme.

Winters concluded:

"If this subpoena had instead been issued to a regional bank with 50,000 customers, it would be on the front page of The New York Times."

Image of IRS offices via Shutterstock


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