Congressmen Question IRS Bitcoin Exchange Probe

Published June 15, 2017

Three members of Congress officially called on Internal Revenue Service (IRS) Commissioner John Koskinen to answer questions about the agency’s probe of Coinbase, an online cryptocurrency exchange company, after three congressmen questioned the agency’s methods and rationale for pursuing confidential user data.

In November 2016, IRS lawyers filed a motion in federal court asking Judge Jacqueline Scott Corley of the U.S. District Court for the Northern District of California to force Coinbase—a private company enabling consumers to trade bitcoins and other digital cryptocurrencies for physical dollars—to turn over customers’ personal and financial information.

In January 2017, Coinbase Chief Executive Officer Brian Armstrong wrote a blog post promising “to contest it in court to protect our customers’ privacy, at great expense.”

In May, U.S. House Committee on Ways and Means Chairman Rep. Kevin Brady (R-TX), Ways and Means Oversight Subcommittee member Rep. Vern Buchanan (R-FL), and U.S. Sen. Orrin Hatch (R-UT) sent the Internal Revenue Service (IRS) a letter requesting answers by June 7 about why it is demanding “the mass production of records for half of a million people” by Coinbase.

“The Ways and Means Committee is in touch with the IRS on this issue and we are now receiving information in response to Chairmen Brady, Hatch, and Buchanan’s letter,” House Ways and Means Press Secretary Lauren Aronson told Budget & Tax News on June 9.

Gone Fishin’

Robert Rodrigo, legal director for the Tax Revolution Institute, describes IRS investigators’ pursuit of Coinbase’s records as a fishing expedition for which it lacks authority.

“My understanding is that the IRS is delving into an area where they haven’t even formulated a policy,” Rodrigo said. “It’s not actually regulated, nor is there a statute that addresses it. Bitcoin is a new technology.

“Of course, it’s a fishing expedition, not just for the information, but because [the IRS doesn’t] know what [it’s] doing,” Rodrigo said. “They haven’t told the world how they’re going to govern this, if at all. They really don’t have a way to go with this. And yet, they’re doing all this on subpoena, so it’s really kind of the chicken before the egg.”

IRS’ demands for Bitcoin users’ records may exceed the agency’s legal authority, Rodrigo says.

“Let’s assume they’re successful with their subpoena and they get all the information they’re looking for,” Rodrigo said. “What are they going to do with it? What policy is going to dictate what they do with it? Are they going to audit, go after, prosecute—what? Everything the IRS does is supposed to be based on statute, allegedly. The question is whether they have the authority to do this.”

Big Data Grab

William Luther, an assistant professor of economics at Kenyon College, says the IRS is asking for lots of people’s confidential information.

“They are requesting account registration information for all Coinbase account holders, including confirmed devices and payment methods; any agreements or instructions that grant third-party access or control for any account; records of all payments processed by Coinbase for merchants; and all correspondence between Coinbase and its users regarding accounts,” Luther said.

“Basically, the IRS wants any and all information that Coinbase has so that it can sift through that information for any hints of misreporting,” Luther said.