Members of the cryptocurrency community are not the only ones frowning upon the IRS’s “John Doe” Summons to Coinbase. The United States Congress has boldly stood up to the U.S. Internal Revenue Service’s attempt at browbeating the digital currency exchange into handing over 500 thousand customers’ data. Last week, Congress wrote a letter to IRS Commissioner, John Koskinen, expressing its concerns and questioning the tax agency’s actions.
Congress explicitly pointed out in the letter that almost all of the users they are seeking account information on did not need to report income to begin with, stating, “90 percent of these customers engaged in less than $10,000 in cumulative, gross transactions during the entire period requested.”
The U.S. Congress emphasized:
“…we strongly question whether the IRS has actually established a reasonable basis to support the mass production of records for half of a million people, the vast majority of whom appear to not be conducting the volume of transactions needed to report them to the IRS. Based on the information before us, this summons seems overly broad, extremely burdensome, and highly intrusive to a large population of individuals.
The IRS’s procedures manual, the Internal Revenue Code (IRC), also raised concerns for Congress. It pointed out the IRS cannot issue a “John Doe” Summons without a “reasonable basis” to suspect an individual has broken tax laws. Further, it asked the IRS to point out what laws these 500 thousand Americans have all broken.
IRS Setting “Dangerous Precedent”
Coinbase is one of the largest Bitcoin exchanges worldwide, so the implications of the “John Doe” Summons could be far-reaching. If the IRS is successful in collecting this massive sweep of private data, the reputation of Coinbase may suffer, and it could lose a large number of U.S. customers. The U.S. could also become fearful of using Bitcoin and in the long-term, could result in the nation lagging further behind Asian countries in FinTech development.
Furthermore, if the IRS does not handle this sensitive data securely, over half a million Americans may become vulnerable to hackers who could steal their identities, Bitcoins, or other digital assets.
“The IRS’s actions in this case also set a dangerous precedent for companies facilitating virtual currency transactions that could be subject to a similar summons.”
Congress is waiting for the IRS to reply by June 7, 2015.