Coinbase Escalates Showdown on U.S. Tax Probe as Bitcoin Surges

The 10,000 bitcoins that seven years ago famously paid for the delivery of two Papa John’s pizzas would be worth more than $74 million today.

The exploding value of the cryptocurrency since its first real-world transaction in 2010 is one reason the U.S. Internal Revenue Service is pushing to see records on thousands of users of Coinbase Inc., one of the biggest U.S. online exchanges. The company’s digital currency platform allows gains to be converted into old-fashioned dollars in transactions that the IRS alleges are going unreported.

Coinbase and industry trade groups are fighting back in court, claiming the government’s concerns about tax fraud are unfounded and that its sweeping demand for information is a threat to privacy.

The IRS persuaded a San Francisco federal judge last year to order Coinbase to turn over customer records from 2013 to 2015 for its investigation into whether taxpayers failed to report income. On Thursday, the IRS is scheduled to be back before U.S. Magistrate Judge Jacqueline Scott Corley to ask her to enforce the order that Coinbase has so far defied, even after the government scaled back its request.

“U.S. taxpayers, including Coinbase users, have made use of virtual currencies to avoid the reporting and payment of taxes,” the IRS argued in a court filing. The agency said it needs access to customer records to “gain some degree of visibility into a space where it is already necessarily moving about somewhat in the dark.” […]

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