Today, Coinbase suffered a major defeat at the hands of the Internal Revenue Service, nearly a year after the case was initially filed. A California federal court has ordered Coinbase to turn over identifying records for all users who have bought, sold, sent, or received more than $20,000 through their accounts in a single year between 2013 and 2015. Coinbase estimates that 14,355 users meet the government’s requirements. The full order is embedded below.
For each account, the company has been asked to provide the IRS with the user’s name, birth date, address, and taxpayer ID, along with records of all account activity and any associated account statements. The result is both a definitive link to the user’s identity and a comprehensive record of everything they’ve done with their Coinbase account, including other accounts to which they’ve sent money.
“a bad precedent for financial privacy”
The order is significantly narrower than the IRS’s initial request, which asked for records on every single Coinbase account over the same period. That request would also have required all communications between Coinbase and the user, a measure the judge found unnecessarily comprehensive.
The government made no claim of suspicion against individual users, but instead argued that the order was justified based on the discrepancy between Coinbase users and US citizens reporting Bitcoin gains to the IRS. Coinbase boasts nearly 6 million customers, but according to a government filing, fewer than 1,000 US citizens have reported cryptocurrency holdings on their taxes.
The ruling has already proven controversial in the Bitcoin world. “We remain deeply unsatisfied with the lack of justification provided by the IRS,” Coin Center’s Peter Van Valkenburgh told The Verge. “Without better rationale for why these specific transactions were suspect, a similarly sweeping request could be made for customer data from any financial institution. It sets a bad precedent for financial privacy.”
Coinbase had vigorously opposed the order on similar grounds, but cast the final ruling as a partial victory. “Although we are disappointed not to be able to entirely defeat the summons,” Coinbase’s David Farmer wrote in a post after the ruling, “we are proud to fight for our customers and in the result we were able to achieve as a small company against a large government agency.”
The company is currently reviewing the order, and intends to notify any affected users before any documents are produced.
Update 11/30, 1:33PM ET: Updated with Coinbase statement.