Last year was a breakout year for cryptocurrencies. At its height, bitcoin’s value increased by more than 20 times from the start of the 2017, and ether and litecoin saw gains of more than 80 times. As prices soared, the number of cryptocurrencies also proliferated as thousands of companies, big and small, lasting and ephemeral, sought to issue their own cryptocurrencies in lieu of traditional financing.
Now that cryptocurrencies (and the blockchain technology underlying them) have expanded beyond dorm rooms, garages and basements, commandeering attention from mainstream investors and Wall Street traders alike, regulators and other governmental authorities are taking note. Given the combination of significant gains in crypto asset values and the heightened potential for their underreporting due to the nature of blockchain technology, it is no surprise that the Internal Revenue Service is among the entities most actively asserting itself.
One of the latest IRS efforts ostensibly targets frequent users of Coinbase, one of the largest retail brokerage platforms for four of the most popular mainstream cryptocurrencies (bitcoin, bitcoin cash, ether, and litecoin). In November 2017, a California federal court ordered Coinbase to provide the IRS with certain records related to all Coinbase users who bought, sold, sent or received more than $20,000 worth of cryptocurrencies (in any of these four types of transactions) in a single year between 2013 and 2015. Coinbase estimates that more than 14,000 of its users are subject to such reporting.
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