The U.S. Internal Revenue Service is now investigating people who used Bitcoin in order to avoid paying taxes.
The IRS asked a California court to order Coinbase, a Bitcoin exchange company, to release the identities of their U.S. users of its service from 2013 to 2015.
In a filing Thursday to the U.S. District Court in San Francisco, the IRS said they have found several cases in which people were using Bitcoin in order to evade taxes.
“Because the IRS considers virtual currencies to be property, United States taxpayers can realize a taxable gain from buying, selling, or trading in virtual currencies. There is a likelihood that United States taxpayers are failing to properly determine and report any taxable gain from such transactions,” the IRS argued.
Coinbase is one of the most popular virtual currency exchanges and serves as a way for people to use bitcoin in order to perform transactions. Founded in 2012, Coinbase is a San Francisco company with 4,800,000 users, according to their website.
The IRS found two taxpayers used separate Coinbase accounts to hide Bitcoin transactions as expenses on their tax returns. Consequently, the IRS argues that other users are also evading taxes through such tax evasion schemes.
Coinbase said they would oppose the demand, saying they have done anything wrong. “Although Coinbase’s general practice is to cooperate with properly targeted law enforcement inquiries, we are extremely concerned with the indiscriminate breadth of the government’s request,” the company said in a statement.
Bitcoin is the most popular alternative currency with a valuation of nearly $10 billion. Introduced on Halloween in 2008, the currency was invented by an unknown programmer or group of programmers under the name of Satoshi Nakamoto. Bitcoins are created as a reward competition system where users offer their computing power to verify and record bitcoin transactions. The computers involved in this system are called miners and successful miners are rewarded with transaction fees and new bitcoins.
Bitcoins can then be exchanged for other currencies, products or most notably drugs. In fact, the virtual cryptocurrency came under fire as it was first used on the Silk Road, an online website that allowed users to anonymously buy and sell drugs using Bitcoin.
IRS Tax rules for Bitcoin were created in 2014. The IRS said that people should treat their virtual currency as property and not as money for tax purposes. For example, if someone buys a Bitcoin, then sells it later, the valuation of the property should be reported to the government.