US Tax Service is trying to get customer data Coinbase!

The Internal Revenue Service (IRS) is seeking access to user records held by bitcoin and ether exchange Coinbase as part of a taxpayer investigation.

The US tax agency filed a petition in the District Court for the Northern District of California on 17th November asking for permission to serve a summons to Coinbase over user information, court records show. The targets of the investigation are not directly named, but are rather referred to as a group of "John Does" who are believed to have avoided or failed to have paid taxes on transactions involving digital currencies.

Now, it seems, the IRS is looking to more aggressively police digital currency users in the US, and the investigation itself focuses on taxpayers who transacted between 2013 and 2015.

Attorneys for the US government wrote:

"The 'John Doe' summons relates to the investigation of an ascertainable group or class of persons, that is, United States taxpayers who, at any time during the years ended December 31, 2013, through December 31, 2015, conducted transactions in a convertible virtual currency as defined in IRS Notice 2014-21."

The court action comes more than two years after the IRS declared that it would regulate bitcoin and other digital currencies as kinds of property subject to tax and reporting requirements.

Yet, in the years that followed, the IRS has reportedly failed to create a comprehensive strategy around the tech, according to a recent inspector general report. That report blasted the IRS, arguing that the agency's shortcomings have heightened tax avoidance risks.

In the meantime, tax professionals in the US have attacked the agency’s approach as too vague and in need of improvement.

As of press time, Coinbase has said that it is weighing the filing and that it is seeking to respond in a way that maintains user privacy.

"We take user privacy very seriously and will work to protect the privacy of our users in broad information requests," Coinbase representative David Farmer said. "We are taking a very careful look at this petition and the scope of the government's authority as it relates to this request."

A representative for the IRS did not immediately respond to a request for comment.

Investigations detailed

While the petition does not point any fingers at potential tax cheats, some of the filings from the IRS offer examples of the kinds of investigations the agency has conducted to date.

A statement from IRS agent David Utzke outlines three instances in which the target of an investigation had ultimately confessed to using digital currency in a bid to avoid scrutiny. He wrote about one individual who, after using offshore accounts for years to maintain their funds, started using the tech to move their money.

Utzke wrote:

"...instead of repatriating his income from an ATM in the form of cash, Taxpayer 1 diverted his income to a bank which works with a virtual currency exchanger to convert his income to virtual currency. Once converted to virtual currency, Taxpayer 1's income was placed into a virtual currency account until Taxpayer 1 used it to purchase goods and services. Taxpayer 1 failed to report this income to the IRS."

Two other cases involved "corporate entities with annual revenues of several million dollars", each of which involved the use of a Coinbase account.

"Both taxpayers admitted disguising the amount they spent purchasing the bitcoins as deductions for technology expenses on their tax returns," Utzke wrote. "The bitcoin transactions were discovered after repeated requests for the original documentation necessary to substantiate the technology expense items claimed on the tax returns."

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Coinbase.