The U.S. Internal Revenue Service has asked a court in California to order Coinbase, a Bitcoin exchange, to hand over the identities of active U.S. users of its service from the beginning of 2013 to the end of 2015.
In a filing Thursday to the U.S. District Court in San Francisco, the IRS said it's investigating whether virtual currency users failed to report income on transactions conducted in the Bitcoin virtual currency. It's targeting Bitcoin because it's the most commonly used of a number of digital currencies.
"Because the IRS considers virtual currencies to be property, United States taxpayers can realize a taxable gain from buying, selling, or trading in virtual currencies. There is a likelihood that United States taxpayers are failing to properly determine and report any taxable gain from such transactions," it argued.
The IRS put taxpayers on notice in 2014 that they had to declare gains on virtual currency transactions. The agency says it has already found examples of attempted tax evasion using Coinbase accounts.
Two taxpayers, both of them companies, used separate accounts to conceal Bitcoin transactions as tech expenses on their tax returns, the IRS said. It also cited a third case involving a taxpayer who sent money to an offshore tax haven and brought it back into the U.S. in Bitcoin.
As a result, the IRS contends it's likely other users are also evading taxes through such schemes.
In addition to customer details, the agency is also after transaction records, account statements, and records of payments made and processed for the users.
San Francisco-based Coinbase said it would oppose the demand, in part because the government hasn't alleged the company has done anything wrong.
"Although Coinbase's general practice is to cooperate with properly targeted law enforcement inquiries, we are extremely concerned with the indiscriminate breadth of the government's request," it said in a statement.