For months, customers, lawyers, and privacy experts have been voicing concerns about the scope of a "John Doe" summons that the Internal Revenue Service (IRS) seeks to serve on on Coinbase. Now, Congress has joined the clamor.
This week, House Ways and Means Committee Chairman Kevin Brady (R-TX), Senate Finance Committee Chairman Orrin G. Hatch (R-UT), and House Ways and Means Oversight Subcommittee Chairman Vern Buchanan (R-FL) (collectively the "Chairs") sent a letter to IRS Commissioner John Koskinen requesting additional information on the summons. In the letter, the Chairs expressed concerns about the basis, scope, and impact of the summons, which could affect as many as 500,000 active Coinbase users. Coinbase, which is headquartered in San Francisco, California, is a company which facilitates transactions of digital currencies like bitcoin and Ethereum.
A "John Doe" summons is an order that does not specifically identify the person but rather identifies a person or ascertainable group or class by their activities. The IRS has argued that a lack third-party information (like the forms 1099 issued by your bank) combined with the anonymity of virtual currency means that the "likelihood of underreporting is significant." As a result, the IRS is seeking records on all U.S. Coinbase customers who transferred convertible virtual currency at any time between December 31, 2013, and December 31, 2015. Those records include but are not limited to user profiles, user preferences, user security settings and history, user payment methods, and other information related to the funding sources for the account/wallet/vault. IRS is also seeking all records of account/wallet/vault activity including but not limited to records identifying the date, amount, and type of transaction, names or other identifiers of parties to the transaction; requests or instructions to send or receive bitcoin; and all related correspondence.
Remarkably, despite its breadth, that request was granted by the Court. However, subsequent filings, like this one, have kept the matter in court and IRS has not yet been granted access to the information.
The Chairs question whether the information is warranted, writing, "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."
According to the Chairs, the request would result in the production of millions of pages of records, including potentially private data. That would be the case despite claims by the Chairs "90 percent of [Coinbase] customers engaged in less than $10,000 in cumulative, gross transactions during the entire period requested."
As a result, the Chairs have asked Koskinen to provide more information, including how the John Doe summons issued to Coinbase fits into the larger IRS digital currency strategy. More importantly, the Chairs have asked for justification for the IRS’s position that all Coinbase customer records are needed for this timeframe and whether a more narrowly tailored request was considered.
The Chairs have asked for a response no later than June 7.
Hatch said, about the request, "Emerging financial technology promises businesses and consumers previously unimaginable financial options. While the IRS should always look into those not paying the taxes they owe, the agency must do so in a way that's reasonable and not overly broad. My oversight work with Chairman Brady aims to ensure that is the case."
The IRS did not respond to a request for comment.
You can read the letter in its entirety (downloads as a pdf) here.
