Brian Armstrong, CEO and co-founder of Coinbase, believes that the IRS unfairly suspects that most users of Coinbase evade taxes. Armstrong, in a recent post, asks the IRS for a more reasonable agreement and an alternative approach to solving the problem.
Created in 2012 by Brian Armstrong and Fred Ehrsam, Coinbase is a well-known platform for Bitcoin and Ethereum exchange that enjoys an established reputation thanks to its presence in many countries around the world.#Coinbase users have been suspected of tax evasion by the #IRS.Click To Tweet
Why is the IRS treating this FinTech provider differently?
Control Over Bitcoin Transactions
IRS wants to impose stricter controls on Bitcoin transactions, which the IRS implies are used for drug trafficking, tax evasion, and money laundering, thanks to the anonymity guaranteed to its users. The IRS has already established its virtual currencies doctrine in 2014 (Virtual Currency Guidance), which treats virtual currencies as property. The purchase, sale, and exchange of which are likely to generate capital gains which should be directly subject to tax.
The IRS believes that Coinbase users don’t abide by US tax laws, and thus suspects that many taxpayers escape its vigilance. At the end of 2016, IRS sent Armstrong’s company a subpoena requesting the platform to reveal records on all accounts of its US customers over a three years period. The IRS filed a John Doe summons on November 17 in federal court, requesting, in particular, the data of millions of Coinbase users registered in 2013, 2014 and 2015.
Coinbase Commits to Comply
Authorized by California Northern District Court, the John Doe summons legally forces the FinTech firm to provide confidential personal and financial information of its users, their transactions history, and even IP addresses.
In a recent blog post, Brian Armstrong, Coinbase CEO, clarified the company’s position on the matter. He noted that his firm is used to cooperating with the IRS to resolve specific cases, but it is concerned about this disproportionate demand from the government and does not intend to remain inactive on these judicial requests. According to the CEO 20% of Coinbase’s 130 employees are involved with tax compliance in some way.
Armstrong pointed out that his company and IRS have the same goal, which is to make all US customers settle their tax payments.
Coinbase plans to cooperate with the IRS and come up with another way to encourage customers to pay taxes. Coinbase is ready to implement practical solutions, such as the simultaneous release of 1099 forms, which effectively allows Coinbase customers to pay taxes without compromising their privacy. These are the same forms used by traditional banking institutions and could be a way for FinTech to appease the IRS.
The US government is beginning to regulate the exchange platforms of Bitcoin because it’s the most popular and most traded virtual currency in the world. Furthermore, Coinbase is the primary target of IRS because of its dominant position on the market.
Without going into the debate on the validity of the action taken by the IRS, this step illustrates the official will to regulate and progressively introduce cryptocurrencies into the American economy. If the IRS is seriously weighing in, and mobilizing considerable means, this can be seen as a strong signal of the level of development of cryptocurrencies in general.