Internal Revenue Service (IRS)

Coinbase Received 1,900 Requests for Client Info From Law Enforcement During First Half of 2020

17/10/2020 by Idelto Editor

Coinbase has revealed that it received a total of 1,914 requests for customer data from global law enforcement agencies during the first six months of 2020. It is, however, not clear how many of the requests were fulfilled.

In its first so-called“transparency report” published Friday, the U.S. crypto exchange – which boasts a user base of 38 million – said 97% of the requests had to do with criminal investigations.

U.S. agencies accounted for the biggest number of requests, sending 1,113 requisitions or 58% of the total. At least 441 (23%) came from the U.K., 176 or 16.5% from Germany and the rest from other parts of the world.

Inside the U.S., Coinbase disclosed that the Federal Bureau of Investigation (FBI) requested the most information. It submitted 340 requests followed by Homeland Security Investigations (184), local state agencies (180), and the Drug Enforcement Administration with 104 requests.

Other requests were drawn from the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Secret Service, the Postal Inspection Service, the Department of Justice, and the Immigration and Customs Enforcement.

Paul Grewal, chief legal officer at Coinbase, said the requests from law enforcement largely come in the form of subpoenas. Sometimes, the requests involve search warrants, court orders, and other formal processes, he added.

“We respect the legitimate interests of government authorities in pursuing bad actors who abuse others and our platform,” noted Grewal, adding, “yet we will not hesitate to push back where appropriate…”

Coinbase’s “transparency report” comes after the exchange’s censure by the digital rights group Economic Frontier Foundation. The group recommended Coinbase publish such reports “for the public to know who is making those requests, or how often.”

What do you think about Coinbase cooperating with law enforcement agencies? Let us know in the comments section below.

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New Zealand Police Seize $91 Million From Russian Bitcoin Exchange Operator

23/06/2020 by Idelto Editor

Police in New Zealand confiscated NZ$140 million ($91 million) from Russian bitcoin exchange operator Alexander Vinnik.

Vinnik is the alleged owner of the collapsed BTC-e exchange. The funds were seized from bank accounts held by Canton Business Corporation, a New Zealand-registered company managing the exchange.

Police said on Monday it is the biggest seizure in the history of the force. Vinnik is accused by U.S. prosecutors of laundering billions of dollars for criminal syndicates through the platform. He denies the charges.

He was arrested in Greece in 2017 while holidaying with his family on U.S extradition orders. Vinnik was later extradited to France, where he remains in jail.

New Zealand police commissioner Andrew Carter said the seized funds are “likely to reflect the profit gained from the victimisation of thousands, if not hundreds of thousands, of people globally as a result of cyber-crime and organised crime.”

Carter alleged that BTC-e exchange operated without anti-money laundering controls and policies, allowing criminals to launder illicit funds through the bourse.

He added that the New Zealand Police worked closely with the U.S. Internal Revenue Service (IRS) “to address this very serious offending.” Police are planning an application to the High Court to forfeit the impounded funds.

In France, Vinnik is charged with counts of aggravated money laundering, extortion, conspiracy, and data manipulation. When his case ends in France, he is expected to be sent back to Greece, then the U.S., and later to Russia.

What do you think about the New Zealand police’s BTC-e bank raid? Let us know in the comments section below.

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IRS Tells Couple With $7 Million in Bitcoin to Liquidate Crypto Assets and Pay off Tax Debt

17/06/2020 by Idelto Editor

The Internal Revenue Service (IRS) has won a case in which it demanded that a Maryland couple liquidate their bitcoin to pay-off a $1.1 million tax debt.

Alexander and Laura Strashny proposed to the IRS to pay their 2017 tax liability, generated from non-crypto activities, in installments over a six-year period.

But after seeing the Strashny’s $7 million cryptocurrency fortune, the tax collector rejected the proposal, insisting that the couple sell a part of their bitcoin and immediately settle the debt in full.

The case was heard in a tax court in the state of Maryland on June 11. More taxes await the couple in the likely event it sells crypto to pay-off the debt. Bitcoin investors in the U.S. are taxed on profits generated from buying and selling of digital financial assets.

The ruling “shows how your cryptocurrency holdings could work against you in applying for an installment plan with the IRS and how – contrary to popular belief – regulators have oversight over your cryptocurrency portfolio,” said Shehan Chandrasekera, tax expert at Cointracker.

According to court papers, the Strashnys filed a 2017 tax return on time, but did not pay the $1.1 million tax charge, inclusive of penalties. In July 2018, the couple proposed to the IRS to pay-off their huge tax bill over six years.

To qualify for the installment plan, a taxpayer must also furnish the IRS with details about their source of income, personal assets, including cryptocurrency, as well as monthly expenses. So, the Strashnys filed a Collection Information Statement, also known as Form 433-A, for this purpose.

It is on this Form that the couple revealed its $7 million crypto cache. In addition to annual wages of $200,000, the Strashnys were also pocketing $19,000 each month from their digital assets investment. Now the IRS hit the family with a formal threat of seizure of wages and properties, as it waited for a response on the installment proposal The tax collector demanded full payment on time.

Eventually, the Strashnys requested a hearing. The tax court ruled that the couple was in a good financial position to pay off the $1.1 million tax debt by liquidating the crypto stash or borrowing U.S. dollars against the virtual currency.

“The outcome of this court case shows how cryptocurrency is not immune from regulatory oversight,” explained Chandrasekera.

“One might question why the cryptocurrency holdings were reported on Form 433-A in the first place. This IRS form is signed by the taxpayer under penalty and perjury. If the large holding of cryptocurrency were omitted from the form, this would have been a fraudulent filing and the consequences could have been much harsher,” he added.

What do you think about the IRS crypto liquidation tax demand? Let us know in the comments section below.

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Loophole in U.S. Tax Law Could Allow Bitcoin Traders to Write off Unlimited Losses

10/06/2020 by Idelto Editor

A loophole in the U.S. tax law could allow qualified bitcoin traders to write off unlimited losses from their trading activities, according to an expert from crypto tax platform Coin Tracker.

Traders, defined by U.S tax collection agency Internal Revenue Service (IRS) as people who trade substantially, regularly and continuously, are allowed a maximum capital loss deduction of $3,000 per year. Excess losses are indefinitely carried into future years.

However, Coin Tracker head of tax strategy Shehan Chandrasekera demonstrates in a recent Forbes column that cryptocurrency traders can use a tax election called the “475(f) election” to go beyond the default limit in any single year.

“The good news is that the 475(f) election allows traders to deduct crypto trading losses without being subject to the $3,000 annual limit,” Chandrasekera notes. By activating the election, traders can also write off unrealized losses at the end of the year “leading to potential tax savings”, the accountant adds.

Individuals who want to benefit from this specific tax dispensation should apply to the IRS within 75 days from the start of the year they intend to operate as such. Traders currently pay taxes on profits generated from buying and selling BTC.

The disadvantage is that those who qualify for the election are subject to “a higher ordinary income tax rate compared to the long term capital gain tax rates that casual investors pay.” Traders are also required to pay the higher tax rate for any unrealized gains at year end.

Chandrasekera warns that the applicability of 475(f) tax election to cryptocurrency is not straightforward as it is only applicable when one deals with “securities” and “commodities.” IRS defines cryptocurrencies as “property”, leaving the applicability of the election for bitcoin traders unclear.

“With that said, bitcoin and some crypto derivatives are treated as “commodities” by the Commodity Futures Trading Commission (CFTC) so 475(f) election for those instruments is much clearer than other instruments,” Chandrasekera explains.

Clarity on the definition is pending. The American Institute of Certified Professional Accountants advocates that IRS make the election applicable to crypto traders and relevant parties.

What do you think about the 475(f) tax election? Let us know in the comments section below.

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66% of Coinbase Users Willing to Leave the Exchange Due to Mounting Privacy Concerns

08/06/2020 by Idelto Editor

Two-thirds of people who use Coinbase are willing to leave the platform following reports that the U.S. exchange plans to sell user data to two government agencies for $250,000.

Cryptocurrency trader and analyst John Rager carried out a poll on Twitter, asking his 73,000 followers: “Would you actually delete or stop using your Coinbase account?”

Over 5,000 people responded, and 66% said they would opt out of the regulated exchange, one of the world’s biggest. The remaining 33% expressed a willingness to stay. The platform holds thousands of personal user information drawn from stringent know-your-customer requirements, in compliance with US policies.

Coinbase is in the eye of a storm after reports emerged at the weekend alleging that the crypto exchange is selling a blockchain tool that provides law enforcement agencies with superior analytical capabilities.

The Drug Enforcement Agency (DEA) and the Internal Revenue Service (IRS) intend to buy licenses from the exchange’s analytics unit called Coinbase Analytics, according to documents that are available for public review.

In one of the documents published in April, the IRS points out the relationship between Coinbase Analytics and Neutrino, a blockchain surveillance platform controversially acquired by Coinbase in 2019. It says the subsidiary “allows for the analysis and tracking of cryptocurrency flows across multiple blockchains that criminals are currently using.”

The IRS added: “Coinbase Analytics also provides some enhanced law enforcement sensitive capabilities that are not currently found in other tools on the market. This action will result in a Firm Fix Priced purchase order, Period of Performance: One base year from date of award with one 12-month option.”

On the other hand, the DEA document observes that Coinbase Analytics (CA) “provides investigators with identity attribution and de-anonymities virtual currency addresses domestically and internationally.”

It said that “CA is known for its accuracy of attribution, which includes some of the most conservative heuristics used in commercial blockchain tracing tools. This is critical in avoiding false-positive during target identification.”

Coinbase denies it is selling personal user data. A company official argued that “all data in our analytics tool is fully sourced from publicly available data, and does not include any personally identifiable information.”

But frequent outages during periods of bitcoin’s hyperactivity, high transaction fees, and other privacy concerns have set thousands of Coinbase users on edge. The exchange has also previously shared data of 14,000 clients who traded $20,000 worth of crypto or more with the IRS, to the chagrin of investors. Privacy is a key tenet of the Bitcoin movement, almost untouchable.

In the John Rager poll, some investors showed they have become disillusioned with the Coinbase ‘dream’.

“Honestly, I don’t think there is a good reason to use it anymore, outside of name recognition. There are many better platforms for onboarding. And better options for trading,” opined @_realPaulRyan.

One @Flat railed: “I’m in the 66% and stopped (using Coinbase) 3 years ago. Fees are an absolute ripoff. Always down when price moves. Absolute joke. Why on earth anyone would use them is beyond me.”

Separately, Rager suggested that “millions of dollars seem to be leaving Coinbase as we speak. Investors & traders are no longer limited to Coinbase or Bitmex. If you screw over customers, take part in shady deals, or don’t improve a product, customers can now go elsewhere to trade/invest.”

What do you think about Coinbase’s deals with the IRS and DEA? Let us know in the comments section below.

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