The U.S. federal court in the Northern District of California is authorizing the Internal Revenue Service (IRS) to serve a so-called “John Doe” summons on San Francisco-based virtual currency exchange Coinbase Inc. seeking information about taxpayers who conducted transactions on the exchange between 2013 and 2015.
The U.S. Justice Department notes that there is no allegation that Coinbase has engaged in any wrongdoing. Instead, the IRS is seeking information about possible tax law violations by the unknown users of the exchange. The summons directs Coinbase to produce records identifying U.S. taxpayers who have used its services, along with other documents relating to their virtual currency transactions.
“As the use of virtual currencies has grown exponentially, some have raised questions about tax compliance,” says Caroline Ciraolo, principal deputy assistant attorney general for the region and head of the Justice Department’s tax division, in a statement.
“Tools like the John Doe summons authorized today send the clear message to U.S. taxpayers that whatever form of currency they use – bitcoin or traditional dollars and cents – we will work to ensure that they are fully reporting their income and paying their fair share of taxes,” she adds.
The IRS has issued guidance explaining that virtual currencies that can be converted into traditional currency are considered property for tax purposes, and a taxpayer can have a gain or loss on the sale or exchange of a virtual currency.
“Transactions in virtual currency are taxable just like those in any other property,” says John Koskinen, IRS commissioner, in a statement. “The John Doe summons is a step designed to help the IRS ensure people doing business in the emerging economy are following the tax laws and meeting their responsibilities.”