Article on Filings in Coinbase John Doe Summons Case (3/20/17)

I recently reported on the IRS John Doe Summons for bitcoin records of Coinbase.  IRS seeks John Doe Summons to Bitcoin Firm (Federal Tax Crimes Blog 11/23/16; 11/30/16), here.  That matter is still churning as the parties spar over whether and how Coinbase should comply.  Part of the sparring undoubtedly involves negotiations between the IRS and Coinbase, but some of the sparring is on the public record in court.  Fortune has this article about a recent filing:  Jeff John Roberts, Only 802 People Told the IRS About Bitcoin - Lawsuit (Fortune 8/19/17), here.

The principal feature of the Fortune article is a new filing of an IRS affidavit in the court case.  The filing is styled:  Declaration of David Utzke in Support of Petition to Enforce Internal Revenue Summons.  The article links the affidavit on the Scribd website here.

I refer readers to the affidavit which provides some detail into the operation of the bitcoin virtual currency.

Also, the affidavit indicates a low level of tax compliance on Form 8949 for bitcoin users.

The article also indicates that this JDS initiative may be an opening gambit for negotiations that may result is Coinbase producing less than the universe of documents requested in the JDS.

The article concludes:

Finally, it's unclear if the IRS is also targeting other virtual currency operators. While Coinbase is the most popular and mainstream bitcoin platform, there are numerous others. Meanwhile, the growing value of other virtual currencies, including Ethereum, mean firms that offer such currencies could soon find themselves in the cross-hairs of the IRS too.

JAT Comments:

1.  I don't know much about bitcoin and other virtual currencies other than that they can be used for anonymity, which means that they are attractive to criminal elements.  So, I really can't comment on that.  I would suggest that users of virtual currency whose only potential criminal activity was tax evasion might want to consider doing a voluntary disclosure.

2.   Paragraph 40 of the affidavit says:

40.  The identifies of the John Does are unknown.  Accordingly, the IRS does not know whether there is any "Justice Department referral," as that term is described in Section 7602(d)(2) of the Internal Revenue Code, is in effect with respect to any unknown John Does for the years ended December 31, 2013, 2014, and 2015.

Section 7602(d), here, provides in relevant part:

(d) No administrative summons when there is Justice Department referral
   (1) Limitation of authority
No summons may be issued under this title, and the Secretary may not begin any action under section 7604 to enforce any summons, with respect to any person if a Justice Department referral is in effect with respect to such person.
   (2) Justice Department referral in effectFor purposes of this subsection—
      (A) In generalA Justice Department referral is in effect with respect to any person if—
         (i) the Secretary has recommended to the Attorney General a grand jury investigation of, or the criminal prosecution of, such person for any offense connected with the administration or enforcement of the internal revenue laws, or
         (ii) any request is made under section 6103(h)(3)(B) for the disclosure of any return or return information (within the meaning of section 6103(b)) relating to such person.

I have not researched the issue, but one question I have is what use the IRS and DOJ could make of any fruits of the Coinbase JDS as to any taxpayers who were subject to a Justice Department referral at the time.  The JDS is an administrative summons within the scope of this provision.