Coinbase customers are receiving what some say they were not expecting, and what most people cringe at receiving – tax forms.
The exchange began mailing out tax forms 1099-K to certain U.S. clients on Jan. 31. While many are expressing surprise, anger, or a combination of both over receiving the tax forms, they were put on notice that this was a possibility given Coinbase’s battle with the IRS last year.
Who’s getting served
Not all Coinbase customers are receiving the tax forms. The only people receiving the forms are those who:
- received more than $20,000 in cash from their crypto sales during the 2017 calendar year
- have more than 200 receipt transactions on the exchange
Also noteworthy is that forms aren’t just being sent to individuals. They are also being sent to “business use” accounts and GDAX accounts if they meet the thresholds for taxation mentioned above.
Many of those receiving the forms took to social media and chat rooms to voice their concerns.
In addition to those griping about the mere receipt of tax forms, others are complaining that they should have been forewarned that the forms were coming. Complaints are also rooted in the amounts of the figures that constitute the threshold requirements being higher than anticipated.
Coinbase made the following statement:
“We used the best data available to us to determine whether your account activity qualifies as Business Use, including but not limited to factors such as completion of a merchant profile or enabling merchant tools.”
We told you last year about how crypto users are subject to a wide array of tax issues in the U.S. This includes the capital gains tax because the IRS considers cryptos as property. IRS rules specifically state that a document called Form 8949 is to be filed, and taxes paid for a “property description likely related to bitcoin.”
We also told you about how Coinbase had wound up in a legal battle with the IRS over having to hand over the names and other identifying information of its customers to the tax authority.
The legal wrangling and accompanying court filings showed that Coinbase had at least 5.9 million customers who completed six billion transactions. However, only 800 to 900 taxpayers a year had electronically filed returns with a property description related to Bitcoin between 2013 through 2015.
Unable to fetch and secure the names of the millions who didn’t bother to fill out this Form 8949 and pay taxes as they should, the IRS forced Coinbase’s hand by taking them to court. In a court filing related to its summonses on Coinbase, the IRS argued:
“U.S. taxpayers, including Coinbase users, have made use of virtual currencies to avoid the reporting and payment of taxes. [We need to] gain some degree of visibility into a space where it is already necessarily moving about somewhat in the dark.”
The judge in the case ruled that the IRS made its case that there was a legitimate purpose to investigate the “reporting gap between the number of virtual currency users Coinbase claims to have had during the summons period and U.S. Bitcoin users reporting gains or losses to the IRS.”
In what was a win for Coinbase was the cap on the number of customers’ files that had to be turned over to the IRS, as well as a narrowing of the scope of customer information that had to be turned over.
As far as these 1099-K forms folks are receiving, those who disagree should seek the assistant of a tax attorney. Those who did not are now on notice of the saying now applicable to crypto holders – the taxman cometh.