Coinbase loses bid to block IRS investigation over customers not reporting cryptocurrency gains

Coinbase Inc has lost a bid to block an Internal Revenue Service investigation into whether some of the company's customers had not reported their cryptocurrency gains.

US magistrate judge Jacqueline Scott Corley in San Francisco ruled that the demand of the tax agency for information is not overly intrusive. The price of bitcoin has been soaring and shot past $10,000 on Tuesday.

With only 800 to 900 taxpayers reporting bitcoin gains from 2013 through 2015 in a period when over 14,000 Coinbase users had either bought, sold, sent or received at least $20,000 worth of bitcoin, ''many Coinbase users may not be reporting their bitcoin gains,'' she wrote. ''The IRS has a legitimate interest in investigating these taxpayers.''

The company, among the world's largest virtual currency exchanges, has been pushing back against the IRS' summons and has continued to resist turning over the information even after the agency scaled back its request in July.

According to Coinbase and industry trade groups, the government's concerns about tax fraud are unfounded and that its sweeping demand for information remains a threat to privacy.

The company said it is glad that the scope of the summons has been narrowed by the court and the government.

The order, covering transactions between 2013 and 2015, comes after a prolonged court fight that started with the IRS demanding that Coinbase provide detailed personal information for over a million customer accounts.

The IRS later scaled down the demand to ask only for accounts that conducted bitcoin transactions either exchanging bitcoin for dollars, or sending or receiving coins from another bitcoin user worth $20,000 or more.

Coinbase argued that even the scaled down IRS request represented an illegal imposition, but the court disagreed.

''The summons as narrowed by the Court serves the IRS's legitimate purpose of investigating Coinbase account holders who may not have paid federal taxes on their virtual currency profits,'' wrote Corley.