We all know what's going on with Coinbase and their battle with the IRS. Regardless if you're a Coinbase customer, fan, or outright dislike them, we can all agree that the IRS is stepping a bit over the line in the ridiculous blanket-ordered invasion of privacy.
When things like this happen, as a community we have two choices. Push-back or get steamrolled.
Thus, if the IRS continues down this path, here's a few things the entire bitcoin community in the United States can take part in and irritate the living shit out of the Internal Revenue Service.
On that note, please review the following disclaimer:
On that note, please review the following disclaimer:
DISCLAIMER: Taxes, as much as we all hate them, are a necessary evil. We do not recommend withholding any taxes owed to the IRS. One should always pay ones taxes on time and in full to avoid penalties that can and will be imposed. This is merely a list of peaceful protests to which anyone can voluntarily contribute or choose to ignore and have nothing to do with withholding taxes from the IRS or participating in anything illegal in any way. As with any protest, a quiet and peaceful approach is always going to get more attention then something loud and illegal. There's a fine line between pissing people off and making a point with an educated course of action.
If by some miracle the IRS owes you money this season, you might want to sit this one out. They might be in a mood on the day your return filing arrives and your refund might find its way to the "accidentally flushed down the toilet" pile.
If by some miracle the IRS owes you money this season, you might want to sit this one out. They might be in a mood on the day your return filing arrives and your refund might find its way to the "accidentally flushed down the toilet" pile.
Now that we have that out of the way ...
Why This Offensively Sucks
We have to remember a few things here. The IRS is asking for records that have noting to do with financial records and during a period of time that they had no formal opinion, guidance, rulings, or otherwise publicly expressed opinion or direction in regards to virtual currency. That didn't happen until 2014.
They are asking for records from 2013 and here's the additional problem with that. Coinbase didn't deal with fiat currency or the United States dollar back then other than accepting it as a form of payment. There were no identification checks required to open a wallet and store bitcoins there or spend bitcoins from there. In may cases Coinbase served as nothing more than a software application to store a digital asset. Now the IRS wants all of that information.
If we review the laws that govern this activity and the reporting requirements thereof, we know that cash transactions and, depending on how Coinbase was setup as well as status of their compliance process, wires and bank drafts would fall under that category. However, only for transactions exceeding thresholds of over $2,000 in some cases and $10,000 in others. Additionally records over $3000 dollars require a 7 year hiatus as a record in their database. Nothing more.
There is no other federal law that requires Coinbase, or any other company, to even keep a record of any customers transaction, much less give it to any agency on demand. They only have to keep a record of revenue and expenses and only those used in their filings, none of which require a name, date of birth, and social security number, etched onto each transaction.
Th reasoning the IRS presents for the privacy invasion is because they feel like "taking a peek" just to see if there's any violations. The same organization of whom has been bombarded with requests for direction on paying bitcoin related taxes and the same agency that ignored everyone's letters on the topic until 2014.
Essentially if you took $100 from your paycheck and bought $100 of bitcoin and then invested that or spent it elsewhere for whatever personal or business reason you had every right to conduct this activity for, the IRS is now asking for a copy of that. You already paid taxes on these funds, these funds will already be on your W2 and 1099 (if you're lucky enough to only have to deal with those), so what business is it of the Internal Revenue Service to also see what you did with the post-taxed income, when you did it, and furthermore who ended up with it?
Perhaps you bought some Alpaca socks? Maybe you blew it on Satoshi Dice? Who cares? Nobody else on earth but the IRS and for no reason worthy of being granted access to this information. Well except for your wife (or significant other) perhaps, but I'm not touching that one. This is a complete and total invasion of privacy and it is illegal.
The question on the legality is ... who is liable? It's certainly illegal for Coinbase to hand over this information unless it's part of a regulated transaction of which requires a report. Note that this is federal law and not something Coinbase does for the hell of it, failure to do so can bring fines, civil complaints, and even criminal charges, so be cognizant of this before you shoot the messenger, Organizations like Coinbase spend copious amounts of money to maintain compliance with federal and state laws and they likely would prefer not spend these funds in this maner. In other words, they don't like it any more than you do. This is likely one of the many reasons they are fighting this, but even the IRS itself may be crossing legal boundaries according to legal analysts. If Coinbase is ultimately forced to disclose this data, then the liability shift is obviously going lean more towards the IRS.
If we review the laws that govern this activity and the reporting requirements thereof, we know that cash transactions and, depending on how Coinbase was setup as well as status of their compliance process, wires and bank drafts would fall under that category. However, only for transactions exceeding thresholds of over $2,000 in some cases and $10,000 in others. Additionally records over $3000 dollars require a 7 year hiatus as a record in their database. Nothing more.
There is no other federal law that requires Coinbase, or any other company, to even keep a record of any customers transaction, much less give it to any agency on demand. They only have to keep a record of revenue and expenses and only those used in their filings, none of which require a name, date of birth, and social security number, etched onto each transaction.
Th reasoning the IRS presents for the privacy invasion is because they feel like "taking a peek" just to see if there's any violations. The same organization of whom has been bombarded with requests for direction on paying bitcoin related taxes and the same agency that ignored everyone's letters on the topic until 2014.
Essentially if you took $100 from your paycheck and bought $100 of bitcoin and then invested that or spent it elsewhere for whatever personal or business reason you had every right to conduct this activity for, the IRS is now asking for a copy of that. You already paid taxes on these funds, these funds will already be on your W2 and 1099 (if you're lucky enough to only have to deal with those), so what business is it of the Internal Revenue Service to also see what you did with the post-taxed income, when you did it, and furthermore who ended up with it?
Perhaps you bought some Alpaca socks? Maybe you blew it on Satoshi Dice? Who cares? Nobody else on earth but the IRS and for no reason worthy of being granted access to this information. Well except for your wife (or significant other) perhaps, but I'm not touching that one. This is a complete and total invasion of privacy and it is illegal.
The question on the legality is ... who is liable? It's certainly illegal for Coinbase to hand over this information unless it's part of a regulated transaction of which requires a report. Note that this is federal law and not something Coinbase does for the hell of it, failure to do so can bring fines, civil complaints, and even criminal charges, so be cognizant of this before you shoot the messenger, Organizations like Coinbase spend copious amounts of money to maintain compliance with federal and state laws and they likely would prefer not spend these funds in this maner. In other words, they don't like it any more than you do. This is likely one of the many reasons they are fighting this, but even the IRS itself may be crossing legal boundaries according to legal analysts. If Coinbase is ultimately forced to disclose this data, then the liability shift is obviously going lean more towards the IRS.
Its not the same as you opening an account with the bank where you are alerted first and foremost that your information is being collected for the government so that can look into your account as they see fit. This is not the case here. This is a case of those who have already paid taxes on monies used to buy a product and then stored that property with Coinbase.
Seriously, what's next? If the IRS going to blanket order all of Wal-Marts law-away's that were sitting there for the years for 2013 through 2015? Wal-Mart does a piss-poor job when it comes to compliance and recently had to implement all new training programs for their MSB activities due to several federal bitch-slaps they received. If that's how they handle financial activity then one can assume they do no better with property being purchased and stored until pick-up. It's a very similar situation.
Seriously, what's next? If the IRS going to blanket order all of Wal-Marts law-away's that were sitting there for the years for 2013 through 2015? Wal-Mart does a piss-poor job when it comes to compliance and recently had to implement all new training programs for their MSB activities due to several federal bitch-slaps they received. If that's how they handle financial activity then one can assume they do no better with property being purchased and stored until pick-up. It's a very similar situation.
People who had already paid taxes on earnings purchased property, and that's using the Internal Revenue Services own words, that could be used for personal use necessitating absolutely viable reason for the IRS to obtain their information. It's not enough than they can likely trace the money you already paid taxes on to Coinbase where it was converted into digital property ... oh no... now they will get every little detail on what you spent it on, how fast you went through it, and if they spend enough time analyzing it, who knows, they may be even able to tell what's your favorite brand of Macaroni and Cheese based on spending habits.
Is there any harm in this knowledge being ascertained by this agency? Who knows, but it's creepy, invasive, and at the end of the day, government employees are human and humans to things that are not always in your best interest which included government officials. Have a look at this article published last year on this very topic and even if they refrain from such activity, the IRS has been hacked before resulting in hundreds of thousands of stolen social security numbers. We're supposed to believe that information disclosure of specific account information of Coinbase user accounts is going to be put in their other super-secret system that's more secure than that protecting the identities of millions of Americans?
Is there any harm in this knowledge being ascertained by this agency? Who knows, but it's creepy, invasive, and at the end of the day, government employees are human and humans to things that are not always in your best interest which included government officials. Have a look at this article published last year on this very topic and even if they refrain from such activity, the IRS has been hacked before resulting in hundreds of thousands of stolen social security numbers. We're supposed to believe that information disclosure of specific account information of Coinbase user accounts is going to be put in their other super-secret system that's more secure than that protecting the identities of millions of Americans?
Protest by Irritation
Quite honestly, what else is anyone going to do? The IRS has allot of power so most people certainly don't want to cross them. However, there are some legal things that can be done without attorney's or mass protests to simply make a point and support entities getting treatment such as what Coinbase is currently being subject to enduring.
Again, if you're worried about any of these, we'd recommend simply skipping right to 5 or 6 and only participating in that manner. The others are a bit more malicious but not illegal nor will they cause anyone any harm or prevent the government from receiving their operating capitol.
5 Ways to Irritate the Internal Revenue Service
1. Use a paperclip or 2, or 36.
Procedure: Just slap a paperclip on your return and its supporting documentation and then paperclip the supporting documentation together. Follow that up with going paperclip crazy and saturate the paperwork with as many paperclips as you can. Try and make it look legitimate and put them is reasonable locations.
Why? Because the IRS has to manually remove each one and reallocate the object. It cannot be processed until this occurs and that times time and additional irritation to those that have to remove them.
2. Stable everything together.
Procedure: Similar to the paperclip annoyance, use staples. However when using staples make sure they are on the right-hand side of all documents.
Why? Extractors have to remove all staples that are present on the right-hand side and yes, the federal government has IRS positions called extractors. Meaning they get paid well to sit there and open up mail. It's bad enough if you work at the IRS, but to also work under the title of "mail opener" would be brutal. I guess "extractor" sounds a little bit cooler although I have noticed most IRS employees that I have known in the past do their best to keep that little nugget of knowledge under their hat. Disclosure is generally accompanies with the same treatment received by roaches, influenza, and dogshit.
3. Send $1 in cash for payment.
Procedure: For the bulk of your payment if you owe the IRS, go ahead and send a check, or better yet, a 3rd party check to really be annoying. However, withhold $1 from that amount and send it along to complete the payment.
Why? Because no matter how small the amount, all cash payments must be processed which requires an entirely other process.
4. Sign every single page in ink.
Procedure: Sign every single page as a recognition of completion of every document submitted with your return, in ink.
Why? The IRS has to verify each signature on every page one exists and manually stamp the page with a date.
5. Write them a letter.
Procedure: This one is the most professional and appropriate methods of protest. Simply state that according to your understanding there is data that either now exists or will exist in their custody that has nothing to do with your tax returns, taxable income, or applicable laws to your tax payer and you would like it disclosed to you with a list of each and every person that now has access to that information both past, present, and future, and that the data be permanently destroyed after it is delivered to you.
Just a thought, you can say anything you want really.
Why? Because regardless of what it is, the IRS is required to read each and every page included with your return. This means that even if you accidentally slip a grocery list in there the IRS has to recognize and consume the information. A few million of the same basic message just might be loud enough to make a point.
Proceed with Caution
Now, despite how much fun these sound and how much you would just love to be a fly on the wall when any of the above occur at the federal agency. With the exception of maybe number five, if handled properly, outside of maybe one unapparent occurrence of any of the above irritations, it might be good idea to refrain overall.
Implementing a plan to execute all five would be pushing your luck and if you prepare taxes then it would be violating tax law. They certainly aren't known for their sense of humor and anyone who's ever dealt directly with them in person knows how much fun they are not.
Circular 230 Section 10.51(a)(12), states that is is a violation of law to present:
"Contemptuous conduct in connection with practice before the Internal Revenue Service, including the use of abusive language, making false accusations or statements, knowing them to be false or circulating or publishing malicious or libelous matter."
If that's not bad enough, if you ever wonder why your CPA is always so uptight and about as humorous and stale pecan. Here's why, Cir. 230 § 10.51(a)(13) goes further and really lays down restrictive regulation:
"Giving a false opinion, knowingly, recklessly, or through gross incompetence, including an opinion which is intentionally or recklessly misleading, or engaging in a pattern of providing incompetent opinions on questions arising under the Federal tax laws. False opinions described in this paragraph (a)(13) include those which reflect or result from a knowing misstatement of fact or law, from an assertion of a position known to be unwarranted under existing law, from counseling or assisting in conduct known to be illegal or fraudulent, from concealing matters required by law to be revealed, or from consciously disregarding information indicating that material facts expressed in the opinion or offering material are false or misleading. For purposes of this paragraph (a)(13), reckless conduct is a highly unreasonable omission or misrepresentation involving an extreme departure from the standards of ordinary care that a practitioner should observe under the circumstances. A pattern of conduct is a factor that will be taken into account in determining whether a practitioner acted knowingly, recklessly, or through gross incompetence. Gross incompetence includes conduct that reflects gross indifference, preparation which is grossly inadequate under the circumstances, and a consistent failure to perform obligations to the client."
Yeah, you can't even have an opinion of the IRS and be an accountant. At least not a tax preparing one anyway. Given the fact that they are flexing their federal muscle and obtaining any information on people they fell like regardless of its relevance, this might explain how people get in trouble for this one and why those in this professional always have cardboard personalities. It's not that they have no sense of humor, its that under the aforementioned regulation, they can't have one, or an opinion for that matter.
I sure would like to see how the IRS can prove in a court of law exactly what language is abusive, to whom it was abusive, and how any person on earth is suppose to know this without explicit clarification. Under this broad statement pretty much anything could be twisted into appearing abusive given the relative nature of its presenter and how it is received which can vary from person to person.
#6 The Slap of Reality
Whereas the items contained within this article are factual, the above 5 irritations are meant for entertainment and we don't recommend actually doing any of the above. Again with the exception of number five and only if the letter is prepared and presented in a professional manner expressing legitimate concerns that one may have. However, what anyone does with this information is their own right and under their own discretion.
Procedure: If you really want to file a complaint in regards to the Coinbase pry. File a complain with the United States Northern District Court of California where the Internal Revenue Service managed to obtain a motion to pursue their efforts. Then put your trust in the legal system.
Why? Because this is a legal matter and the activity the IRS is involved in is illegal. If you've done noting wrong and paid your taxes ass required by law, the IRS has no right to to invade your privacy or subject your records to malicious intent. There is also nothing the IRS can to do to you for expressing a concern and asking a judge to have your records suppressed and protected because it's simply none of the IRS's business how many bitcoin you bought with money you've already paid taxes on, unrealized (as a capital gain) bitcoin received as compensation or any investment earnings in bitcoin you've accumulated at all.
Keep in mind. Bitcoin is taxed as a capital gain and even the IRS will tell you themselves it is considered your property and is not subject to any federal taxation until realized. That means that until you trade is for fiat currency in the United States or exchange the value for goods and/or services. They have absolutely no reason or legal right to be investigating your personal or business affairs without a good faith reason (prima facie) to investigate your personal records, even if you accumulated more bitcoin as earnings as a result of trading on an exchange or other form of earnings compensated in bitcoin value.
Considering they don't even know the names of those they wish to investigate it's safe to assume they do not have reasons they need Coinbase records specifically of each and every single Coinbase user over the three year time period in question.
This is a blatant case of being presumed guilty until proven innocent and that's not the way the legal system works in the United States. The IRS has this ass-backwards.
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