Coinbase Inc., one of the most popular online exchanges for digital currencies, has warned thousands of its customers that it will be reporting their financial data to the U.S. tax officials.
The request was part of a probe by the Internal Revenue Service (IRS) into alleged tax evasion.
The IRS considers cryptocurrencies such as bitcoin as property for federal tax purposes, meaning any profits or losses from the sale or exchange of the virtual coins should generally be reported as capital gains or losses, Reuters reported.
Trading of cryptocurrencies, digital tokens whose value is not backed by central banks and hard assets, surged in 2017 amid a rally in their price. A single bitcoin is worth more than $8000, compared with $1000 a year ago.
Despite the surge it remains unclear how many Americans hold cryptocurrencies as these are bought and sold on online platforms, sometimes anonymously or using pseudonyms. US-based cryptocurrency exchange Coinbase says it has 10 million users, although it is unclear how many of these are in the U.S.
Meanwhile, the information of around 13,000 users will soon have to be submitted to the IRS, according to a Friday letter to customers from Coinbase, which operates as a cryptocurrency exchange and wallet service.
The exchange said the information it is required to provide within 21 days includes ID, name, birth date, address, and transaction records from 2013-2015.
The cryptocurrency service calls the limitation of disclosure a partial, but still significant, victory for Coinbase and its customers and encouraged users affected “to seek legal advice from an attorney" promptly.
"We remind all our customers, that you have a responsibility to self-report and pay taxes on all taxable gains," Coinbase told customers.
In its initial court filing in June, the IRS requested information on all Coinbase users, cointelegraph.com reports, but the number was reduced by a court order in November, according to RT.com, a Russian international news network funded by the Russian government.
The California court order said the IRS has the right to identify people, who bought, sold, sent, or received more than $20,000 through their Coinbase accounts in a single year during the three-year period. The IRS initially targeted over 500,000 users in its court filing.
To be sure, less than 100 people out of the 250,000 individuals who have already filed federal taxes this year through company Credit Karma reported a cryptocurrency transaction to U.S. tax authorities.
This is despite nearly 57 percent of the 2000 Americans surveyed by the credit score startup and research firm Qualtrics last month saying they had realized some gains from cryptocurrencies, according to a recent Credit Karma study.
Roughly the same percentage said they had never reported cryptocurrency gains to the Internal Revenue Service, while nearly half of those polled said they understood how owning cryptocurrencies affected their taxes, Reuters cited the study as saying.
Meanwhile, the IRS news is yet another stroke of bad luck for Coinbase. Last year, it started seeing complaints soar on the U.S. Consumer Financial Protection Bureau’s website. Unfortunately for the San Francisco business and its customers, things have only gotten worse, Bloomberg explained.
From January to August 2017, Coinbase had received at least 293 complaints on the site. So far in 2018, the total is more than 900. Some customers have also taken to Reddit to express dismay over multiple unauthorized charges to their credit cards, money disappearing and bank accounts drained to nothing.
Coinbase is the one receiving the blame from customers, and the company is aware that it needs to do something to fix that perception. It’s one of the most prominent startups in the financial-technology world, with a valuation of $1.5 billion and investors like Spark Capital, Andreessen Horowitz and the New York Stock Exchange.
But it has been caught in a typical startup problem: not being prepared to handle a surge in demand that it so desperately craved before the Bitcoin boom of 2017.
Coinbase is making moves to prepare for the future. The company hired a former Twitter executive to lead customer service and now says it’ll increase the size of the support team to 500 in the first half of the year from 200.
(Newsmax wire services contributed to this report).
© 2024 Newsmax Finance. All rights reserved.