Customer Sues IRS to Halt Probe of Coinbase Bitcoin Accounts
The government is arguing that digital currency owners are likely to engage in tax evasion.
A Los Angeles attorney is asking a federal judge to halt an IRS probe into more than a million customer accounts at Coinbase, a popular site for buying and holding the crypto-currency bitcoin.
In a complaint filed on Tuesday in San Francisco, Jeffrey Berns asked the court to quash a subpoena that orders Coinbase to turn over the names and account information of all of its customers.
The IRS obtained the subpoena on the grounds that bitcoin owners are likely to engage in tax evasion by failing to declare capital gains on the currency, or by engaging in schemes to buy goods and services with bitcoin in order to avoid the taxman.
The IRS probe asks Coinbase to turn over the accounts of customers who bought bitcoin between 2013 and 2015, a period when the value of bitcoin soared dramatically from around $13 to a high of over $1,100 in 2014. One bitcoin was selling for $775 as of Thursday afternoon.
In challenging the subpoena, Berns is asking the judge to quash it on behalf of all “John Does” named in the IRS investigation.
Berms says he bought bitcoins held by Coinbase, but has never sold any or used them to buy anything. He argues the IRS request is illegal because it is far too broad, sweeping in customers like him who have done nothing illegal.
In an interview with Fortune, Berns’ lawyer and law partner, Lee Weiss added that the IRS investigation is based on a faulty premise that bitcoin is intrinsically illicit.
“The IRS is saying anyone who trades in virtual currency is suspect. In our view that’s wrong and shows a lack of understanding of bitcoin,” said Weiss.
In the court filing, Berns says it is as if the IRS learned of someone using Amazon to avoid taxes, and then demanded the company turn over all its customer accounts.
A hearing over the subpoena is currently scheduled for January 17 of next year. So far, Coinbase has yet to turn over any of the customer information.
After news of the IRS investigation surfaced, Coinbase suggested it would file a legal challenge of its own, but has yet to do so.
“We are aware of the motion to intervene filed yesterday by Jeffrey K. Berns in the IRS petition. We are tracking all court proceedings and look forward to engaging the IRS,” said the company in a statement. “We will keep our customers updated on any significant developments with respect to Coinbase’s engagement on this matter.”
If a judge grants Berns permission to intervene in the investigation on behalf of the so-called “John Does,” he will seek to quash the subpoena outright or at least make it less broad.
As Fortune has previously reported, one virtual currency lawyer believes the IRS’s request for all of the Coinbase accounts may just amount to a tactic. Specifically, the agency is opening with a very broad demand but may, in the end, be okay with obtaining only accounts above a certain value or that have been used in many transactions.
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