Learn everything you need to know about crypto tax in our Cryptocurrency Tax Guide
Yes: The IRS has received user data from Coinbase
In December 2016, the IRS issued a summons to Coinbase, asking for records of ~500,000 Coinbase customers. These records include cryptocurrency traders' personal information and cryptocurrency transactions.
Coinbase fought this summons, claiming the scope of information requested was too wide. After Coinbase petitioned the IRS, the order was changed to only be for a more narrow scope of information from only ~13,000 users. On February 23rd, 2018, Coinbase informed these users that they were providing this information to the IRS.
Was my Coinbase information given to the IRS?
Coinbase provided the IRS documents for any user with at least $20,000 of any one type of transaction: buying, selling, sending, or receiving digital currencies, in any one year between 2013 to 2015.
This means that if you bought $20k worth of crypto in 2013, 2014, or 2015, or if you received at least $20k of crypto to your Coinbase wallet in one of those years, then Coinbase submitted your information to the IRS. The information provided to the IRS is as follows:
The information provided to the IRS is as follows:
Taxpayer ID number
Transaction logs, post-transaction balance, names of parties in the transaction
Periodic statements of accounts and invoices
If you were trading crypto on Coinbase between 2013 and 2015, then Coinbase may have provided your information to the IRS. Even if you were trading smaller amounts of crypto at a time, your total transaction value could have exceeded the $20k threshold if you had many transactions.
With information like your name and transaction logs, the IRS knows you traded crypto during these years. As a result, many have used our full filing service to amend their prior tax years to include cryptocurrency.
Will the IRS receive any information about me if I only started trading on Coinbase after 2015?
Coinbase may be reporting your trade activity to the IRS even if you’ve only been trading recently in the 2018, 2019, and 2020 tax years. They are doing this by sending Form 1099-Ks.
According to Coinbase, if you had at least 200 orders during the tax year, with the total value of those orders equal or greater than $20,000k, then you would have received a 1099-K. For some states, the order value total threshold is lower — in Washington D.C. for example, the threshold is only $600.
As it the case for tax forms in general, if you receive a 1099-K, then the IRS receives a copy of the same form. This means that the IRS receives insight into your trading activity on Coinbase.
If you have more questions, be sure to read our detailed article about the 1099-K.
What is the IRS doing with this information from Coinbase?
In the summer of 2019, the IRS began to increase their enforcement of cryptocurrency taxation. They began to send our letters 6173, 6174, and 6174-A as well as even CP2000 notices. Coinbase’s IRS reporting is likely how the IRS knows who to send these letters to.
The IRS is auditing cryptocurrency investors as well. At TokenTax, we've seen an increase in IRS audits in 2020. This information from Coinbase likely is included within IRS investigative efforts.
How do I file taxes to the IRS?
If you file your crypto taxes for each tax year that you’ve traded cryptocurrency, then you will be compliant with the IRS. If you fail to file your crypto taxes, the IRS may send you a letter asking for you to file or to pay your crypto tax liability, as mentioned above.
The IRS may ask for a higher amount of tax than you owe in reality, as their calculations may be based off incomplete information.
For example, let's say you bought 1 BTC from a friend for $5,000 and later sold it on Coinbase for $10,000. If Coinbase sent the IRS information about your account, then the IRS only knows you sold $10k of BTC, and thus they may see this as $10k of profit and ask for taxes owed accordingly.
If you properly report your crypto taxes, you'll demonstrate that you actually only made a profit of $5k on this BTC sold.
Many crypto investors use crypto tax software to handle their crypto taxes. Such software imports their transaction data from exchanges, calculates their gain or loss, and produces accurate crypto tax forms. This way, you can expect to pay the right amount of taxes and be compliant with the IRS.
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