Bitstamp user gets both good and bad news in fight with US taxman

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William Zietzke doesn’t believe the U.S. Internal Revenue Service (IRS) should have access to his cryptocurrency history. He’s fighting an order by the taxman that was delivered to the Bitstamp exchange, as well as others, to turn over data, arguing that he has the right to financial privacy and that the IRS cannot be trusted to keep his personal data secure. He also argued that the order by the IRS was too broad in scope, and challenged the government body’s authorities in court. This week, Zietzke received a little bit of good news, but also a little bit of bad.

Judge John Coughenour, who serves in the U.S. District Court for the Western District of Washington, agreed that the IRS needs to cut down on the scope of data it wants Bitstamp to produce. However, the judge also overruled the other two challenges, allowing the IRS to proceed with its information-gathering exercises.

Zietzke doesn’t believe the IRS has the right to collect private financial data on U.S. taxpayers. This argument has already been tossed out in previous litigation, most notably in U.S. v. Miller in 1976. The U.S. Supreme Court ruled at the time, according to Judge Coughenour, that “a person lacks a reasonable expectation of privacy in a bank’s records pertaining to the person.”

The crypto enthusiast probably should have just left well enough alone. He filed a tax return for 2016 that showed capital gains of $104,482, the majority of which came through two crypto transactions. However, he later realized that the transactions didn’t actually occur in 2016 and filed an amended return to show gains of only $410. He also wanted the IRS to give the rest of the overpaid taxes back to him.

Going from over $100,000 to just $410 is a huge difference and the IRS wanted to understand the situation better. It requested Zietzke’s crypto history, leading to the legal fight. It was a challenge destined to fail, given the level of control the IRS has to investigate all financial dealings in the country. With having brought the issue to the surface, Zietzke is undoubtedly going to remain flagged in the IRS and all of his tax returns will be further scrutinized going forward.