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IRS Aggressively Pursuing Cryptocurrency Transactions

01 / 23 / 2020

Zietzke v. United States, Case No. 19-cv-03761 (N.D. Calf. 1/17/2020)

In this case, the IRS is investigating William Zietzke's 2016 tax year liabilities and whether he properly reported his 2016 cryptocurrency transactions.  In the audit, it issued a summons to Coinbase, Inc., a cryptocurrency exchange.  Zietzke filed a petition to quash the summons.  The IRS treats cryptocurrency transactions as monetary transactions with tax consequences, as stated in IRS Notice 2014-21, 2014-16 I.R.B. 938.

On an original 2016 tax return, the Zietzkes reported long-term capital gains from 7 transactions involving the sale of bitcoin.  On an amended return, they removed the two largest of these transactions, to reduce the reported long term capital gain from $104,482 to $410, to support a claim for refund.  This amended return spawned the investigation.

The IRS was permited to request user names, identity-confirming personal information, and minimal information concerning bitcoin transactions, information about counter-parties, but the summons must be limited to transactions in 2016 and determining tax implications of those 2016 transactions. There was no bad faith (lack of good faith) found.  The court recommended the granting of the motion to enforce the summons, once it was amended as to time limitations.