The Anonymity of Digital Currencies Like Bitcoin is in Jeopardy

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Periodically these articles cover the evolution and use of digital currencies, such as Bitcoin and Ethereum. See the following pieces for more information: Digital Currencies Such As Bitcoin Remain a Financial Medium in the News and Is Bitcoin a Temporary Innovation or is it an Inevitable Intangible Asset Full of Inherent Risk?

One of the apparent benefits to “crypto-currency” users is the anonymity inherent in the underlying transactions. Given the digital nature of those exchanges, the counter-parties are effectively “invisible”. That “invisibility” may now be at risk of being lifted, at least in certain tax-related circumstances.

On November 17, 2016, the Internal Revenue Service filed United States of America v. John Doe (Case # 3:16-cv-06658) with the federal District Court for Northern California. In that case the IRS requested authority to serve a “John Doe” summons on Coinbase, Inc. in order to learn the identities of parties who used Coinbase between December 31, 2013 and December 31, 2015 to facilitate convertible digital currency transactions. “John Doe” summons cannot be purely open-ended, however, and the purpose in this case is because the IRS alleges it has a reasonable basis to believe certain groups or classes of people using Coinbase may have violated federal tax laws. Here is a link to the United States’ Ex Parte Petition for Leave to Serve “John Doe” Summons in the newly filed Coinbase case.

The IRS has used the “John Doe” summons process previously in other cases regarding various offshore account holders, online financial transaction participants, and credit card customers. Given the privacy implications to Coinbase customers, as well potentially to other digital currency participants, this case will have implications to users of the developing digital currencies.

One of the apparent benefits to “crypto-currency” users is the anonymity inherent in the underlying transactions.

The Court granted the Petition on November 30, authorizing the IRS to serve the John Doe summons. Here is a link to the Court’s Order Granting Ex Parte Petition for Leave to Serve “John Doe” Summons. (Here is a link to the U.S. Justice Department’s press release about the Order.)

To consult with an experienced business law lawyer today, call 855-780-9986

– For more information, call Philip N. Kabler of the Gainesville, FL office of Bogin, Munns & Munns at 352.332.7688, where he practices in the areas of business, banking, real estate, and equine law. He has taught business and real estate law courses at the University of Florida Levin College of Law and Warrington College of Business Administration. And is now the President-Elect of the Eighth Judicial Circuit Bar Association.

NOTICE: The article above is not intended to serve as legal advice, and you should not rely on it as such. It is offered only as general information. You should consult with a duly licensed attorney regarding your Florida legal matter, as every situation is unique. Please know that merely reading this article, subscribing to this blog, or otherwise contacting Bogin, Munns & Munns does not establish an attorney-client relationship with our firm. Should you seek legal representation from Bogin, Munns & Munns, any such representation must first be agreed to by the firm and confirmed in a written agreement.

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