Coinbase IRS contract
Cryptocurrencies,  Regulation

First the feds, now the taxman: Coinbase inks $125K deal with IRS

The latest contract has the potential to alienate Coinbase’s exchange users—as some are concerned data about their transactions could be passed on to government agencies

Fresh from infuriating some customers after offering blockchain analytics software to the U.S. Secret Service, Coinbase has inked an even more lucrative deal… with the taxman.

Records uploaded to a government website show the crypto company signed a contract with the Internal Revenue Service on July 14 that’s worth at least $125,000.

The agreement is initially going to be in force for 12 months when it begins next Thursday, but it has the option to be extended for another year.

It’s no secret that the IRS is incredibly keen to crack down on tax evasion achieved through the ownership of cryptocurrencies. Back in May, a platform that helps traders fill out their tax returns revealed it was invited by the agency to perform audits—and released documents that showed what the government body was looking for in a contractor. CryptoTrader.Tax said it had turned the opportunity down, adding: “Our full focus is on serving our customers and making the cryptocurrency tax reporting process as seamless as possible.”

That company’s reaction was likely borne out of a concern that they can’t earn the trust of customers if they’re working for both sides, but this don’t seem to be a concern that has weighed heavily on Coinbase.

Making it official

Last month, The Block had reported that Coinbase was hoping to sell its analytics software to the IRS and the Drug Enforcement Agency. In a document published in April, the IRS had said: “As law enforcement techniques evolve and other cryptocurrencies gain acceptance, criminals are using other types of cryptocurrencies, not just Bitcoin to facilitate their crimes. In addition to the Bitcoin blockchain, Coinbase Analytics (formerly known as Neutrino) allows for the analysis and tracking of cryptocurrency flows across multiple blockchains that criminals are currently using.”

Coinbase has stressed that the information offered to clients through its analytics arm is kept completely separate from the exchange’s internal data. But rumors of the deal in June were enough to alienate some of its users. One Twitter poll by the crypto analyst Josh Rager suggested that 66% of respondents would be willing to delete their Coinbase account or stop using the platform, while 33% said an IRS contract wouldn’t change their habits.

‘Not particularly newsworthy’

Coinbase CEO Brian Armstrong was rather dismissive of the criticism leveled at the company when its contract with the U.S. Secret Service emerged earlier this week. That particular deal is worth $183,750 over four years.

Describing reports about the deal as not “particularly newsworthy,” he attempted to assuage concerns by stressing that the data provided through Coinbase Analytics is publicly available anyway, meaning that his company isn’t sharing secrets with the feds.

He added that building relationships with law enforcement is important to growing the crypto industry. To be fair, Armstrong may have a point in this regard—and the intelligence provided by Coinbase to the IRS could result in a more even-handed approach to crypto taxation in the future.

The question now is whether Coinbase’s users will follow through with their promise to take their custom elsewhere.

 You May Also Like

Connor Sephton is a journalist with an interest in cryptocurrencies, personal finance, and financial inclusion—as well as the challenges the crypto industry faces in achieving mainstream adoption. He owns cryptocurrencies.