Coinbase Inc., a virtual currency exchange platform, was recently ordered by the United States District Court for the Northern District of California to provide the Internal Revenue Service (IRS) with 2013-2015 transaction data for thousands of Coinbase accounts. See United States v. Coinbase Inc., et al., No. 17-CV-01431-JSC, 2017 WL 5890052, (N.D. Cal. Nov. 28, 2017). The IRS, citing references to 5.9 million customers and more than $6 billion of bitcoin transactions on Coinbase’s website, identified a potential reporting gap, since only 800-900 taxpayers have identified bitcoin transactions on their tax returns in the past few years. (Coinbase’s website currently references 10 million customers and $50 billion in transactions.) Although the IRS narrowed the scope of the third-party record keeper summons it had originally issued to Coinbase under Code Sections 7602, 7603 and 7609 (aka, a “John Doe Summons”), the parties could not reach agreement on what was to be produced, and the government initiated enforcement proceedings earlier this year.
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Treasury Releases Report on Reducing Tax Regulatory Burdens
By Andrew R. Roberson & Justin G. Crouse on
Posted in IRS Guidance
On October 2, 2017, the US Department of the Treasury (Treasury) submitted a report (Report) to the President of the United States recommending the withdrawal, revocation or revision of eight Treasury Regulations in order to eliminate or otherwise mitigate the “burdens imposed on taxpayers.” This action springs from Executive Order 13789 issued by the President on April 21, 2017, calling on Treasury to identify and reduce tax regulatory burdens that impose undue financial burdens on US taxpayers or otherwise add undue complexity to federal tax laws.
The Report is largely consistent with Treasury’s interim report dated June 22, 2017, but sets forth in greater detail the specific actions recommended by Treasury. However, the Report also stated that Treasury is considering possible reforms of several recent regulations not identified in its interim report, such as regulations under Internal Revenue Code (Code) Section 871(m) (relating to payments treated as US source dividends) and the Foreign Account Tax Compliance Act. The Report also states that Treasury and the Internal Revenue Service (IRS) have initiated a comprehensive review of all regulations—regardless of when they were issued—that is coordinated by the Treasury Regulatory Reform Task Force and is a furtherance of executive orders adopting a PAYGO approach to regulations.…
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The IRS Is Struck Down Again in Privilege Dispute
Courts continue to strike down the Internal Revenue Service (IRS) as it continues to test the bounds of the attorney-client privilege and work product doctrine through the issuance of improper summonses. In the last several years, the IRS has filed numerous summons enforcement proceedings related to the production of documents generally protected by the attorney-client privilege, tax-practitioner privilege, and/or work product doctrine. These summonses include overt requests for “tax advice” and “tax analysis,” which several courts have refused to enforce. For example, see Schaeffler v. United States, 806 F.3d 34 (2d Cir. 2015).
Once again, in United States v. Micro Cap KY Insurance Co., Inc. (Eastern District of Kentucky), a federal district court rejected the IRS’s arguments and refused to enforce an inappropriate summons. The opinion is available here. The IRS filed this enforcement proceeding seeking to compel the production of confidential communications between taxpayers and the lawyers that assisted them in forming a captive insurance company. After conducting an in camera review (where the judge privately reviewed the documents without admitting them in the record), the judge found the taxpayers had properly invoked privilege since each document “predominately involve[d] legal advice within the retention of [] counsel.”
The court also rejected the government’s argument that the attorney-client privilege was waived by raising a reasonable cause and reliance on counsel defense to penalties in the taxpayers’ case filed in Tax Court. Because the government’s argument was untimely, it was waived and rejected outright. The court, however, proceeded to explain how the argument also failed on its merits.…
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Facebook Battles IRS In Summons Enforcement Case
Facebook is in a protracted battle with the IRS related to its off-shoring of IP to an Irish affiliate. Read more here. The IRS issued an administrative summons for the documents, and Facebook has refused to comply with the summons. The IRS is asking the court to enforce the summons and force Facebook to…