Virtual Currency and the IRS

The use of virtual currency such as Bitcoin has been growing for all sorts of online financial transactions. But the Internal Revenue Service says they’re finding that very few of those transactions are being reported for tax purposes.
In fact, the IRS says, only a tiny percentage of virtual currency users actually declared a profit or loss on Bitcoin transactions on a return. The IRS considers virtual currency to be property, and capital gains or losses from such transactions should be reported on Form 8949.
Bitcoin was valued at $13 each when it first debuted, but each virtual Bitcoin is now worth over $1,130.
The IRS has launched a wider investigation into the question and has asked a court to require Coinbase, a virtual currency exchange, to turn over customer data, which would include every customer account and detailed transaction records.
Coinbase is one of the largest exchangers of Bitcoin for dollars in the U.S. The company’s website claims over six million customers worldwide in 33 countries.
Published reports say it seems highly unlikely that only a mere 800 people used Bitcoin for reportable transactions in each of the years analyzed. And that leads to speculation that indeed, virtual currency users may be skirting tax law.
To find out, the IRS issued a subpoena last year asking the company for its data. Coinbase refused, claiming the IRS demand was too broad. Now, the IRS has asked a federal court to order Coinbase to turn over the data.
But until a judge forces them to do otherwise, Coinbase attorney Juan Suarez said the company is sitting tight.

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