GOP lawmakers question IRS summons to Coinbase users

Three Republican lawmakers who chair key congressional committees and subcommittees related to tax policy have sent a letter to Internal Revenue Service Commissioner John Koskinen asking about the IRS’s recent efforts to gain more information about users of Coinbase, the largest Bitcoin exchange in the U.S.

Late last year, the IRS sent a broad request known as a John Doe summons seeking information about all of the San Francisco-based service’s users (see IRS seeks information on Bitcoin users from Coinbase). The IRS has been trying to learn the identities of users of the digital currency, suspecting that many of them are not paying taxes on their profits. The price of a single Bitcoin rose last week to an all-time high of $1,800, only a little over a day after reaching a record high of $1,700, according to the digital currency news site Coindesk, which recently reported the price of a Bitcoin has gained over 70 percent this year.

In a letter Wednesday, House Ways and Means Committee Chairman Kevin Brady, R-Texas, Senate Finance Committee Chairman Orrin G. Hatch, R-Utah, and House Ways and Means Oversight Subcommittee Chairman Vern Buchanan, R-Fla., asked Koskinen for more information on the John Doe summons it issued to Coinbase for its users’ records.

In the letter, lawmakers wrote of concerns about the basis, scope, and impact of the summons, which is expected to affect approximately 500,000 active Coinbase users. It would lead to the production of millions of pages of associated records, many of which contain personally identifiable information, they contend. Many of the Coinbase users do not complete enough transactions to have to report activity to the IRS, according to the lawmakers, who estimated that 90 percent of the customers engaged in less than $10,000 in cumulative, gross transactions during the entire period requested by the IRS in its summons. They also asked the IRS to explain how the summons fits into its larger efforts to clarify tax issues related to digital currencies.

Drew Angerer/Bloomberg

They noted that in March 2014, the IRS started working on clarifying tax issues related to digital currencies, when it issued guidance indicating that digital currencies would be treated as property for tax purposes. However, in September 2016, the Treasury Inspector General for Tax Administration reported that the IRS had not yet developed a comprehensive digital currency tax strategy and said the IRS should update its initial guidance to reflect the various uses of digital currencies. However, the lawmakers noted, no such update has yet appeared.

“We strongly question whether the IRS has actually established a reasonable basis to support the mass production of records for half of a million people, the vast majority of whom appear to not be conducting the volume of transactions needed to report them to the IRS,” the chairmen wrote. “Based on the information before us, this summons seems overly broad, extremely burdensome, and highly intrusive to a large population of individuals.”