IRS John Doe Summons To Coinbase Users Spurs Congressional Response
Senator Orrin Hatch, Chairman of the Senate Committee on Finance, along with Representatives Kevin Brady, the Chairman of the House Committee on Ways and Means, and Vern Buchanan, the Chairman of the Ways and Means Oversight Subcommittee, have written a letter to IRS Commissioner John Koskinen, asking for clarification about potential IRS overreach.
“The Senate Committee on Finance and the House Committee on Ways and Means have an exclusive jurisdiction over federal revenue measures … As such, the Committees have a responsibility to examine Internal Revenue Service actions in emerging areas of tax administration, including digital currencies.”
The letter further references an apparent juxtaposition between the IRS’ position on digital currencies over time. The IRS ingressed into the cryptospace by issuing 2014 guidelines which classified digital currencies under federal property tax laws, yet a 2016 report by the Treasury Inspector General for Tax Administration (TIGTA) claimed that a comprehensive digital currency strategy had yet to be developed by the IRS. Moreover, this lack of a strategy since the initial release of the 2014 guidelines is noted by the legislators as failing to match the growing pace of the “various uses of digital currencies.” The legislators further highlighted the counterintuitive logic displayed by the IRS when it issued a December 6, 2016, summons to the virtual currency exchange Coinbase in San Francisco, without an update to their guidelines and policies.
As noted in the letter, the summons to Coinbase could potentially affect 500,000 users who were trading or holding virtual currency between January 1, 2013, and December 31, 2015. The IRS demand for these records would include personally-identifiable information. Per the letter, “According to the Internal Revenue Code (IRC), the issuance of this type of summons – called a John Doe Summons – requires the government to establish that the summons pertains to an ascertainable class of persons, whose identity is unknown, and with respect to whom the IRS has a ‘reasonable basis’ for the belief that the individuals have failed to comply with tax laws.”
The legislators drove their point home by stating:
“We strongly question whether the IRS has actually established a reasonable basis to support the mass production of records for half 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 letter concludes by warning the IRS of the “dangerous precedent” they are potentially setting for companies that facilitate digital currency transactions and could be liable to a similar summons. The legislators requested that a detailed update to the IRS’ policies be presented no later than June 7 of this year. The California-based law firm Berns Weiss LLP has also contested the IRS summons.