The US Internal Revenue Service (IRS) has filed a motion asking the US Federal Court of Northern California to force Coinbase to disclose the personal details of all US users that have conducted Bitcoin trades between January 1, 2013, and December 31, 2015.
The IRS said the motion is part of a large-scale tax evasion investigation through which it's trying to identify persons that have received payments or stored funds in Bitcoin as a way to avoid paying US taxes.
"Further, in the experience of the IRS, tax noncompliance increases when there is no third-party information reporting. That is, taxpayers are less likely to report and pay taxes on income that is not independently reported to the IRS by a third party," the IRS said.
"Based upon a review of the petition and supporting documents, the Court has determined that the “John Doe” summons to Coinbase, Inc. relates to the investigation of an ascertainable group or class of persons, that there is a reasonable basis for believing that such group or class of persons has failed or may have failed to comply with any provision of any internal revenue laws, and that the information sought to be obtained from the examination of the records or testimony (and the identities of the persons with respect to whose liability the summons is issued) are not readily available from other sources."
Coinbase, a Bitcoin exchange service, is a very popular destination for people looking into setting up a Bitcoin wallet, but it's especially popular in the US, since the company was founded and is based in San Francisco, California, near the center of the tech world.
"Although Coinbase's general practice is to cooperate with properly targeted law enforcement inquiries, we are extremely concerned with the indiscriminate breadth of the government's request. Our customers’ privacy rights are important to us and our legal team is in the process of examining the government's petition. In its current form, we will oppose the government’s petition in court."
Until now, Coinbase had collaborated with law enforcement across the world when investigators wanted the details of users that were under suspicion of having committed a crime.
The IRS' request would require Coinbase to hand over the personal details of potentially millions of users to the US government, allowing authorities to create a very detailed database of US citizens, their Bitcoin accounts, and past Bitcoin transactions. This database could very well be used to track future transactions.
Back in July, the EU was planning to create a similar database that would hold the identities of real word persons and their attached Bitcoin accounts, in order to help law enforcement agencies fight money laundering operations that have, in recent years, moved to the world of anonymous crypto-currencies.