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Thread: Largest US Bitcoin Exchange Ordered To Disclose Three Years Of User Data To IRS

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    Default Largest US Bitcoin Exchange Ordered To Disclose Three Years Of User Data To IRS

    Largest US Bitcoin Exchange Ordered To Disclose Three Years Of User Data To IRS

    Last week we reported, that in an unprecedented attempt to breach the personal privacy of users of the largest bitcoin exchange in the US, Coinbase, the IRS filed papers seeking a judicial order to serve a so-called “John Doe” summons on the San Francisco-based Bitcoin platform.



    The government’s request was part of a bitcoin tax-evasion probe, and seeks to identify all Coinbase users in the U.S. who “conducted transactions in a convertible virtual currency” from 2013 to 2015. What makes a “John Doe” unique, is that it represents a special "shotgun" form of summons to look for tax evaders that allows the IRS to obtain information about all taxpayers in a group or class of people, even if the agency doesn’t know their identities. The IRS has deployed the tactic in its recent crackdown on undeclared offshore accounts, with the implication that any such broad sweep may lead to prosecution.

    Coinbase executives were "extremely concerned" and vowed to oppose the government's petition in court.

    Our customers may be aware that the U.S. government filed a civil petition yesterday in federal court seeking disclosure of all Coinbase U.S. customers’ records over a three year period. The government has not alleged any wrongdoing on the part of Coinbase and its petition is predicated on sweeping statements that taxpayers may use virtual currency to evade taxes.



    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. Our customers’ privacy rights are important to us and our legal team is in the process of examining the government’s petition. In its current form, we will oppose the government’s petition in court.

    Coinbase head legal counsel, Juan Suarez, said that "we want to work with law enforcement — that's generally our policy," . "But we can't tolerate sweeping fishing expeditions. We are very concerned about the financial privacy rights of our customers."

    We concluded our report by wishing "Good luck to Coinbase fighting the IRS: if America's tax collector is intent on getting the identities of the biggest traders are in America's largest bitcoin exchange, it will certainly succeed (especially if they happen to be conservatives)."

    Alas, our best wishes were not enough, and yesterday a federal court in the Northern District of California ordered Coinbase to disclose what the IRS has demanded: all American user transactions from 2013 to 2015.

    From the authorization:

    A federal court in the Northern District of California entered an order today authorizing the Internal Revenue Service (IRS) to serve a John Doe summons on Coinbase Inc., seeking information about U.S. taxpayers who conducted transactions in a convertible virtual currency during the years 2013 to 2015. The IRS is seeking the records of Americans who engaged in business with or through Coinbase, a virtual currency exchanger headquartered in San Francisco, California.



    “As the use of virtual currencies has grown exponentially, some have raised questions about tax compliance,” said Principal Deputy Assistant Attorney General Caroline D. Ciraolo, head of the Justice Department’s Tax Division. “Tools like the John Doe summons authorized today send the clear message to U.S. taxpayers that whatever form of currency they use – bitcoin or traditional dollars and cents – we will work to ensure that they are fully reporting their income and paying their fair share of taxes.”



    Virtual currency, as generally defined, is a digital representation of value that functions in the same manner as a country’s traditional currency. There are nearly a thousand virtual currencies, but the most widely known and largest is bitcoin. Because transactions in virtual currencies can be difficult to trace and have an inherently pseudo-anonymous aspect, taxpayers may be using them to hide taxable income from the IRS. In the court’s order, U.S. Magistrate Judge Jacqueline Scott Corley found that there is a reasonable basis for believing that virtual currency users may have failed to comply with federal tax laws.

    One paragraph that will likely get particular scrutiny now that virtually any Bitcoin transaction in the US is open to IRS scrutiny is the following:

    The IRS has issued guidance regarding the tax consequences on the use of virtual currencies in IRS Notice 2014-21, which provides that virtual currencies that can be converted into traditional currency are property for tax purposes, and a taxpayer can have a gain or loss on the sale or exchange of a virtual currency, depending on the taxpayer’s cost to purchase the virtual currency (that is, the taxpayer’s tax basis).

    The order concludes by saying that the court’s order "grants the IRS permission to serve what is known as a “John Doe” summons on Coinbase. There is no allegation in this suit that Coinbase has engaged in any wrongdoing in connection with its virtual currency exchange business. Rather, the IRS uses John Doe summonses to obtain information about possible violations of internal revenue laws by individuals whose identities are unknown. This John Doe summons directs Coinbase to produce records identifying U.S. taxpayers who have used its services, along with other documents relating to their virtual currency transactions."

    Despite the order, Coinbase has vowed to continue the fight: "We look forward to opposing the DOJ's request in court after Coinbase is served with a subpoena," a spokesman for the San Francisco-based company said in an email to Reuters.

    Coinbase remains concerned with its U.S. customers' privacy rights in the face of the government's request, he added, although he is likely far less concerned than any people who used Coinbase from 2013 to 2015, and who may soon be getting a visit from the taxman, even if they have done nothing illegal. As for the myth that trading bitcoin by ordinary Americans provides some additional layer of privacy, that is about to be thoroughly debunked.

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    That's asking Coinbase to commit suicide. Once their trust is breached there toast. Tax evaders always find another way.

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    How safe is bitcoin now?

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    so much for anonymous bitcoin transfers ....

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    Well no....when I receive a Bitcoin transfer it goes to a site that rolls the coin makes it anonymous...then I send to me

    There are a few that do it.....protects you and me

    PayPal does not have that

    Pre paid protects you but possible they still can get the reseller

    I think bit coin still the safest

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    Quote Originally Posted by tbird686 View Post
    Well no....when I receive a Bitcoin transfer it goes to a site that rolls the coin makes it anonymous...then I send to me

    There are a few that do it.....protects you and me

    PayPal does not have that

    Pre paid protects you but possible they still can get the reseller

    I think bit coin still the safest
    what are you on ?

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    Quote Originally Posted by nob0dy View Post
    what are you on ?
    is that sarcastic? or serious

    drugs? payday is next week


    the service

    torguard is one bit launder is another....there are lots

    i cant see them getting warrants to sites that dont even require real info from you......make the account use for for a week then make a new one ...so on and so on.....harder for them to track.....lots of warrants for them to go threw

    for one guy who spent 15 dollars

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    @tbird686 .. they said the same thing about pay-pal ..... look how many people got busted ....... & are still going to court .........

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    but the third party site.......like i said i dont give any personaly info.........hey change the bitcoin algorithm im told....not its not comming from the same place

    the coins are all messed up numbers ,.....you can buy machines plug them in and they help the processing of the coins and ..............i don't know

    thats just what im told.........it a new virtual currency.......spread all over the world..........so your buying a fraction of digital currency thats not american or canadian or mexican and trading it


    then they can cash it into what ever currency.......kinda up in the air still at this point .......


    there are no words on it as to what you bought with it.......they would have to get the sellers account with all the transactions that will show came form a launder site .......so they dont see who the customer is or will in turn have to get a warrent yet again for the site that maybe over seas........to say hey give me all that info from this guy who made 10,000

    is it worth it........maybe one day but im guessing there still looking for the paypal suckers


    i still remember when they said dont do iks they will track it to your house and what 5 years later they still have not caught these guys offering the service

    most pay with bitcoin
    ip forwarding
    and way smarter stuff then i know because there still here

    its us the dumb re sellers that get caught and they still are here......

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    I still think it is the safest way to pay and protects both the buyer and seller of the service.

    You can use a proxy server to open a bitcoin account under any name you want and do not have to give any of your own personal info.
    You can then fund your bitcoin account with a prepaid credit card - again using a proxy server - so there isn't even a trace back to your real IP address. As tbird said you can use an anonymizer to tumble the bitcoins together with thousands of transactions making it virtually impossible to see where the bitcoins came from or went to.

    Much safer than any other form of payment that I can think of - including prepaid credit cards.

    If the reseller takes prepaid credit cards - then he has to someone get the money out of the credit card and into his pocket - this is where it can be traced back to him. Some resellers open an online poker account and use their customers' prepaid credit cards to put money into their poker account. Once you are dealing with over $100 I think most of these gambling sites want some sort of real identification - so you can't use a phoney name or address - this makes it easy to trace the prepaid credits cards to a real name and address.
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    this line says it all : Alas, our best wishes were not enough, and yesterday a federal court in the Northern District of California ordered Coinbase to disclose what the IRS has demanded: all American user transactions from 2013 to 2015.

    You can't win the IRS , or the DOJ ;x

    @jedi good advice ..... but how many people used your method Vs bitcoin " normal " thinking it was all anonymous transactions ?

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    Quote Originally Posted by nob0dy View Post
    what are you on ?
    ROTFLMAO....love ya bro.

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    You're right there may not be a lot of the end users setting up fake bitcoin accounts and tumbling them before moving them in or out of legitmate accounts.

    I think most of the resellers here accepting bitcoins have been recommending that everyone anonymize their bitcoins. I think most of the resellers have multiple bitcoin accounts through different exchanges with fake names and then probably one or two legitimate bitcoin accounts using their real ID. As long as they tumble their bitcoins while in their fake accounts before sending them to their legitimate account I can't see how any of the S.I. investigators can trace any payments to them - if they can't trace the reseller then that helps protect the people buying their services.

    I think it is one thing for the IRS to force an exchange to disclose their client data - but I don't think any of the S.I. investigators have that kind of clout.
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    Quote Originally Posted by jedi View Post
    You're right there may not be a lot of the end users setting up fake bitcoin accounts and tumbling them before moving them in or out of legitmate accounts.

    I think most of the resellers here accepting bitcoins have been recommending that everyone anonymize their bitcoins. I think most of the resellers have multiple bitcoin accounts through different exchanges with fake names and then probably one or two legitimate bitcoin accounts using their real ID. As long as they tumble their bitcoins while in their fake accounts before sending them to their legitimate account I can't see how any of the S.I. investigators can trace any payments to them - if they can't trace the reseller then that helps protect the people buying their services.

    I think it is one thing for the IRS to force an exchange to disclose their client data - but I don't think any of the S.I. investigators have that kind of clout.
    even if you mix them or tumble them , the transaction can be still traced by to you

    read more below :

    Code:
    https://99bitcoins.com/know-more-top-seven-ways-your-identity-can-be-linked-to-your-bitcoin-address/
    Code:
    http://siliconangle.com/blog/2015/07/14/hacking-team-found-a-way-to-track-and-trace-bitcoin-transactions-and-the-software-is-now-in-the-wild/

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    Thanks nob0dy - there is some good reading at those two links.

    I agree that someone could hack into your computer and find you real (legitimate) bitcoin wallet and your personal information - but if you use a proxy server to create a bitcoin wallet with a phoney name, address, email, etc. and then fund it with a prepaid credit card you are anonymous. I don't think Dishnet or any other S.I. investigator is going to hack into your computer to get your true identity to link you to an illegal IPTV/IKS service purchase for a few dollars.

    On the other hand I could see some government agency doing it if there was big money involved or some serious crime or security issue.

    When I send a bitcoin payment to someone from a phoney bitcoin exchange it automatically creates a new bitcoin address for me to send it from - it does not use my main wallet's bitcoin address. The receiver of those bitcoins receives the bitcoins from a wallet address that has never been used before and never will be used again. The receiver has no idea who sent those bitcoins - he just has this phoney bitcoin wallet address. Hopefully he used a phoney bitcoin address to receive the funds and then tumbles them before sending them elsewhere. If he does tumble them then those bitcoins are pretty much untraceable. Even if he didn't tumble them - you the sender can not be traced back to your real identity because you used phoney information to start with.

    So they can't get your real identity using your bitcoin address - but they may be able to trace you back through any forum you belong to. If you sent a PM to a reseller to make arrangements to purchase their IKS/IPTV service using bitcoins then I guess a hacker could hack into the forum and get the IP address of your nick if you don't log in with a proxy server. If you used a gmail or some other phoney email service I guess they could maybe hack into this email service to get your IP address - but I think that is pretty much a long shot.

    So in essence they may be able to get your real identity using your IP address or other investigative information - but they couldn't do it just using your phoney bitcoin address.
    Bitcoin is secure and anonymous if you use a phoney bitcoin address, proxy server and fund it with untraceable funds that have been tumbled. But the forum adminstrators or someone that hacks into the forum could try to get your real identity using your IP address or other info that you post on the forum.

    Bitcoin = secure Any forum = not so secure
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