By Paul Vigna
A federal court on Wednesday ruled that the Internal Revenue Service can serve digital-currency-services company Coinbase with a "John Doe summons" that seeks detailed information on its customers' transactions from 2013 to 2015.
The IRS and the Justice Department are looking for information about the use of the digital currency bitcoin and the possibility that it has been used to evade federal tax laws over the three-year period. The agencies don't have any proof of tax evasion, and there is no allegation that Coinbase engaged in any wrongdoing.
"We are aware of, and expected, the Court's ex parte order today," Coinbase said in a statement. "We look forward to opposing the DOJ's request in court after Coinbase is served with a subpoena. As we previously stated, we remain concerned with our U.S. customers' legitimate privacy rights in the face of the government's sweeping request."
Coinbase, founded in 2012 and based in San Francisco, offers "wallet" services for its customers, essentially online accounts for holding and trading bitcoin. The company has raised $117 million in capital in its history.
Coinbase said it currently maintains about 5 million wallets for its customers and had about 3 million at the end of 2015, the period under question by the IRS. The accounts are spread out globally, however, and aren't just in the U.S.
Bitcoin was launched in January 2009 by a person or group under the pseudonym of Satoshi Nakamoto. The digital currency is maintained by a distributed network of computers and isn't backed by any government or central agency. Transactions on the bitcoin network are visible on a public ledger, but the identity of the participants is encrypted.
In 2014, the IRS declared it would treat bitcoin as property for tax purposes, subjecting it to the same regulations as other securities, meaning holders would face capital-gains taxes if they sold bitcoin at a profit. However, given the hidden identity of its holders, the IRS suspects those taxes aren't being paid by some bitcoin users in the U.S.
"The John Doe summons is a step designed to help the IRS ensure people doing business in the emerging economy are following the tax laws and meeting their responsibilities," said IRS Commissioner John Koskinen in a press release from the Justice Department.
According to a Wall Street Journal article in 2015, the John Doe summons allows the IRS to obtain information about all taxpayers in a certain group, even if the agency doesn't know their identities.
The price of bitcoin didn't move on Wednesday's news. It was recently trading around $742, up about 1% on the day.
Two other prominent startups that offer digital-currency services, Blockchain.info and Circle, said they haven't heard from the IRS, but their business models are somewhat different from Coinbase's, which may explain why they haven't been contacted.
Write to Paul Vigna at firstname.lastname@example.org
(END) Dow Jones Newswires
December 01, 2016 00:30 ET (05:30 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.