The IRS is vigorously pursuing its case against Coinbase as it announces a “reporting gap” where only 0.2% of Coinbase users reported a loss or gain on their cryptocurrency transactions.
It’s extremely difficult to get away from the Tax Man. One of the main draws of cryptocurrency for many individuals was the promised anonymity, but for those living in the United States, the IRS is proving to be a tenacious entity. Case in point is the ongoing lawsuit between the IRS and Coinbase that began in November of last year. And it seems that the IRS is even more engaged in winning the fight as they’ve discovered a “reporting gap” in the number of accounts given up by Coinbase and the actual number of people who reported a loss or gain between 2013 and 2015.
A Huge Discrepancy
The legal fight between Coinbase and the IRS has gone round and round. However, the IRS is adamant on getting their hands of the accounts of Coinbase users to ascertain who has been avoiding paying their tax bill. In light of the massive explosion of the value of Bitcoin since the start of the year, the total taxes owed could easily be in the millions of dollars.
Then there’s this juicy tidbit that has the IRS salivating. Of the 500,000 user accounts handed over, only 900 of them have reported losses or gains on their cryptocurrency. For those who are fans of math, that comes down to about 0.2% of Coinbase users reporting their cryptocurrency transactions.
The IRS Smells Blood in the Water
Needless to say, this fact is like waving red meat in front of a starving dog. The IRS is going to continue to go full-bore on Coinbase as they’re certain that a lot of people on the exchange owe back taxes. (Not to mention the penalties for late taxes! Christmas came early this year for the IRS.)
This means a lot of people could eventually find themselves owing a lot of money to Uncle Sam. Remember that in the eyes of the US government, virtual currencies are considered property and are taxed as such.
Last week, the IRS scored a victory against Coinbase when US Magistrate Judge Jacqueline Scott Corley ruled in favor of the federal agency, stating:
It’s legitimate for them to investigate whether people are making money on their bitcoin purchases … I have to give tremendous discretion to the agency as to how they investigate.
Corley has given Coinbase time to make an appeal. However, in light of the fact that the “reporting gap” shows the vast, vast majority of Coinbase users are not giving Uncle Sam his due will continue to ensure that the IRS will not give up. It might be prudent for such individuals to begin socking a little bit away to cover that tax bill that may eventually become due.
Do you think the IRS will win in their lawsuit against Coinbase? Does the “reporting gap” show that most Coinbase users are avoiding paying their taxes? Let us know in the comments below.
Images courtesy of Pixabay and Bitcoinist archives.