The Empire Strikes Back as IRS Expands Hunt for Bitcoin Users Who Don’t Report Capital Gains Taxes

by Kenneth Schortgen, The Daily Economist:

Sovereign governments around the world have instituted a number of different programs and processes to deal with the rise of crypto-currencies, and the use of ones like Bitcoin to function outside their controlled monetary systems. In China for example, new guidelines were put in place for Bitcoin exchanges that now require identity checks and monitoring of all transactions.

But the U.S. has chosen a different path, and it stems from a ruling in 2014 by the U.S. district court of jurisdiction in Southern New York where judges determined that Bitcoin was an security rather than a currency, and as such was to be treated like an investment requiring the filing of capital gains taxes on the holder’s tax returns.

And while little actual investigation or pursuit of individuals failing to file their Bitcoin profits with the IRS has taken place over the past two to three years, that appears to be changing now with the government’s monitoring of exchanges like Coinbase and their ramping up of their intention to go after individuals who do not report their Bitcoin capital gains profits on their annual tax returns.

The Internal Revenue Service revealed new details about its investigation into tax evasion related to bitcoin, filing court documents that suggest only a tiny percentage of virtual currency owners are reporting profits or losses in their annual returns.

The new documents, filed Thursday in San Francisco federal court, come in the midst of a closely-watched legal fight between the IRS and Coinbase, a popular service for buying and selling bitcoins that hosts over a million customer accounts.

The dispute began last year when the IRS issued a sweeping summons for Coinbase to turn over a vast amount of customer data, including every customer account as well as detailed transaction records.

Coinbase claimed the IRS demands are illegally broad and refused to comply, which in turn led the IRS to file a federal lawsuit last week to enforce the summons. – Fortune

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