DOJ Files John Doe Summons to Compel the Release of Bitcoin Customer Names

Posted in Hot Topics, Offshore Account Update on December 16, 2016 | Share

Coinbase is a virtual currency exchange where consumers can purchase Bitcoin. Many people buy Bitcoin because this currency is supposed to provide privacy to consumers.  However, Bitcoin has come under renewed scrutiny upon the publication of a report prepared by the U.S. Treasury Inspector General for Tax Administration (TIGTA). TIGTA issued warnings on tax compliance issues raised by virtual currencies, which are becoming more widely used to hide income from the IRS in light of the IRS crackdown on offshore entities.

Following the report from TIGTA, the Department of Justice filed a petition in federal court on behalf of the IRS, which is seeking to compel Coinbase to turn over records of customers who bought virtual currency between 2013 and 2015. The petition was a John Doe summons request. A John Doe summons is commonly used to try to discover the identities of individuals who may be engaged in tax evasion. It essentially involves asking for identifying of information on an unclassified group of people. 

The fact the government has taken this step should be of great concern to anyone who purchased virtual currency through Coinbase. If you suspect the government could uncover your identity and use that information to find income you failed to report, you should consult a Washington DC tax attorney right away to find out what options you have available to you.

The Government is Using a John Doe Summons to Seek the Identities of Bitcoin Users

A John Doe summons can be requested to investigate an unidentified person or a specific group of persons. The court must approve a request for the summons and will do so only if the Department of Justice can show that the summons will facilitate an IRS investigation of a person or group of persons because there is a “reasonable basis” to believe that person or group may have failed to comply with tax laws. The DOJ also has to show they cannot get the information they seek from other sources.

The IRS is not supposed to ask the DOJ to request a John Doe summons unless an IRS investigation has gone beyond the information-gathering stage and there is reason to suspect that a tax compliance issue exists.  IRS agents typically provide the DOJ with declarations which the DOJ presents to the court to convince the court the summons is justified.

In late November, the court entered an order authorizing the IRS to serve the John Doe summons. This means that the IRS is likely going to be able to ask Coinbase to turn over information on account holders.  The IRS has already successfully used this type of summons to get accountholder information from banks including Bank of America and HSBC.

The fact the IRS is now trying to find out identities of Bitcoin and virtual currency users shows that the government is not going to rest when it comes to aggressive recovery efforts. After aggressively pursuing investigations into those with money offshore, this is yet another expansion of the DOJ and IRS efforts to find every dollar of undeclared income. If you are afraid you could be vulnerable to having hidden funds discovered in an investigation, you should consult with tax attorney Kevin Thorn for help as soon as possible.

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