The IRS and Chainalysis: Pressure on American Bitcoin Investors
Investing in cryptocurrencies has enabled people to experience significant financial gains in a short period of time. Due to the somewhat secretive nature surrounding blockchain currencies, most casual observers would suspect that cryptocurrency assets are easily hidden away from all prying eyes; whether they come from official or unofficial sources. However, the practice of blockchain analysis allows a number of firms around the world to track transactions taking place on public blockchains. Chainalysis, a market leader in this field, has recently penned a number of deals with the U.S. government that will provide various government agencies with a wealth of data.
The Internal Revenue Service (IRS) has been investigating whether Bitcoin is being used to facilitate money laundering or tax evasion for some time. The IRS has recently begun utilizing software provided by Chainalysis in order to speed up its investigations. The company uses blockchain analysis to track Bitcoin transactions and to also attach real-world identities to these transactions.
Chainalysis has been keen to develop its relationship with law enforcement and has recently signed new contracts with a number of U.S. government agencies. The company provides its services to the IRS in both the Western and Midwest regions, and has also begun to provide blockchain analysis and custom computer programming services to the Immigration and Customs Enforcement Agency (ICEA) and the Drug Enforcement Administration (DEA). The co-founder of Chainalysis, Jonathan Levin, has stated that his company: “Provides software to IRS, DOJ, DEA, FBI, Europol and several other law enforcement officials and government agencies around the world to help identify the owners of virtual currencies.”
This all looks set to add further pressure on American cryptocurrency investors who are already being turned away from exchanges and ICOs. In addition, it remains to be seen just what impact this will have on the current legal battle taking place between the IRS and Coinbase.
IRS VS COINBASE
The IRS is currently trying to obtain customer records from Coinbase and has taken the exchange to court to try and force the issue. The IRS initially requested the records of almost all of the firm’s 500,000 U.S. customers, with the agency interested in identifying customers who conducted transactions on the site between 2013 and 2015.
The IRS has stepped-up its investigations following a report published in 2016 by the Treasury Inspector General for Tax Administration (TIGTA). The paper stressed the deficiencies in taxpayer non-compliance issues regarding transactions involving virtual currencies and highlighted that additional actions were required to ensure compliance from taxpayers.
The IRS responded by issuing a number of broad based summons that required Coinbase to relinquish its customer’s records. The exchange has so far attempted to stand its ground, and has managed to reduce the initial summons to approximately 14,000 customers, with the main focus being on clients who bought, sold, set, or received the equivalent of $20,000 during a one year period between 2013 and 2015. Coinbase continues to fight this summon, and recently released the following statement:
“We were proud to appear in court today, together with support from industry colleagues, to continue to fight against what we believe to be government overreach. In the future we hope to work with the IRS to establish a reasonable tax reporting method that makes sense for virtual currency service providers and consumers alike”.
Despite the stance being taken by Coinbase, it’s clear that the IRS is ramping-up its objective of identifying and taxing U.S. Bitcoin holders. For individuals who fall under the jurisdiction of the USA’s governmental agencies, it will become increasingly difficult to maintain anonymity whilst interacting with the Bitcoin blockchain. While the final outcome is unclear, the drive to track and monitor the Bitcoin network will surely push privacy-focused individuals to use currencies that grant a greater level of anonymity and protection from blockchain analysis.
Featured image from BigStockPhoto.com
Source: Read Full Article