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Bitcoin Customer Info Sought Via John Doe Summons

Hot Topics, Offshore Account Update

Posted on December 16, 2016 |

The IRS has been aggressive in trying to identify hidden funds and collect back taxes. In response to intense offshore investigations which adversely impacted account holder privacy, many individuals began trading in virtual currencies instead of investing funds offshore.  Now, however, the IRS is aggressively investigating currency trading platforms and is pursuing legal means to obtain information on account holders.

In particular, the Department of Justice just petitioned a court to allow a John Doe Summons to allow the IRS to obtain information from Coinbase on its customers who traded Bitcoin on the platform between 2013 and 2015.  The federal court granted the DOJ's request, which means the IRS will now be allowed to serve a summons on Coinbase to compel the currency trading platform to provide details on account holders. The IRS used a similar process in the past to compel HSBC and Bank of America to turn over information on individuals with accounts as well.

If you are concerned that the IRS is going to potentially obtain information about your virtual currency trading, you should be proactive in speaking with a Boston tax attorney about your options.

The IRS is Pursuing an Investigation into Virtual Currency Traders

A John Doe summons is an investigatory tool which is used when the IRS wants to get information about an unknown person or an unknown group of persons. The group of persons about whom information is being sought must be an identifiable group, there must be a reason to suspect that the individuals within this group violated tax reporting obligations, and the information the IRS is trying to obtain must not be available through means other than the summons.

Investigatory guidelines for the IRS indicate the appropriate use of the summons comes after a preliminary investigation and it is appropriate to ask the court to allow a John Doe summons only after there is a demonstrable reason to believe tax law violations may have occurred. When the Department of Justice goes to court to ask the court to allow a John Doe summons, the DOJ typically will present declarations from IRS agents in order to convince the court of the appropriateness of the summons.

In late November, the court granted the DOJ's request to allow the issuance of a John Doe summons in connection with the trading of Bitcoin currency. As a result, the IRS can now serve a John Doe subpoena on Coinbase to request identifying information of people who traded currency on the platform between 2013 and 2015. 

Those who used Coinbase should be concerned about this IRS investigation. The fact the IRS is now expanding its aggressive investigatory tactics into the virtual currency market should also be of grave concern to anyone who may have income or assets not declared to the IRS as required.

The IRS is increasingly demonstrating its willingness to pursue new avenues to try to collect missing revenue. If you are concerned that you could be in legal trouble for failure to comply with tax rules, you should talk with Kevin thorn as soon as possible about what options you may have available to you.

For a consultation, contact Kevin E. Thorn, Managing Partner, at ket@thornlawgroup.com or (617) 692-2989

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