California federal court allows the IRS to request crypto exchange customer data

on Nov 29, 2019
Updated: Mar 11, 2020
  • California federal court dismisses complaints about the IRS requesting user data from the crypto exchange Bitstamp.
  • The complaint was filed by a crypto user William Zeitzke who requested tax returns and then decided to complain when the agency started investigating his case.
  • Federal court judge dismissed 5 out of 6 arguments from the complaint, agreeing that the IRS went overboard regarding the quantity and nature of requested data.

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The Internal Revenue Service (IRS) was recently targeted by a court filing issued by a cryptocurrency user, William Zeitzke, who complained about the agency’s investigation of his crypto transactions. Zeitzke claimed that the IRS is ‘overstepping its remit’ by requesting data regarding his transactions from the crypto exchange, Bitstamp.

According to the filing, Zeitzke contacted the IRS, stating that he made a mistake when filing his taxes back in 2016. He claimed to have overestimated his long-term capital gains for the year and has requested a tex return.

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Naturally, the agency started researching the issue and conducting an audit of his crypto transactions to determine whether there truly was an issue. The agency also requested that Zeitzke provides data regarding his cryptocurrency holdings and transactions, to which he obliged.

However, he allegedly failed to include the data from a cryptocurrency exchange Bitstamp, which he also used, alongside others. The agency contacted the exchange and requested Zeitzke’s financial records in order to include them in their investigation.

Court dismisses 5 out of 6 arguments against the IRS

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Zeitzke responded with a filing that questioned the agency’s actions on six grounds, five of which were dismissed by the California federal court due to ‘lack of merit.’ The court then decided that the IRS’ request for data from Bitstamp should be allowed, and viewed as legitimate.

However, the court did agree with one argument that Zeitzke had made, which is that the agency’s summons is overboard and that the IRS requested relevant and irrelevant information alike. Zeitzke also argued that he doesn’t trust the government to keep his transactional information safe, as well as that the IRS is collecting data that he had already provided.

Interestingly enough, the IRS recently provided guidelines for paying crypto taxes, without including the De Minimis Tax Exemption, as reported. The reason was that doing so would overburden the agency. However, the agency also believes that crypto ATMs and kiosks need to be regulated and that all data from them should be taken and filed in order to avoid potential tax evasion.


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