While the IRS was waging a legal battle to uncover the identities of Bitcoin users another battle was being fought in a state prosecutor’s office that too involving Bitcoins. The matter relates to the office of the Pennsylvania’s Allegheny County District Attorney’s Office which apparently paid a ransom in Bitcoin to protect the privacy of its own information. The amount of the ransom was $1400 in dollar terms . One may argue that it is a relatively small amount in ransom terms but it was a ransom nevertheless. It was a ransom and that too paid by a govt agency and that too in Bitcoins.
One could think of a hypothetical situation where a Bitcoin user say having a Coinbase usage history could pay a ransom (If they could) to being detected by the IRS. In such a scenario we could think of a situation where we could begin to ask as to if paying the ransom should be tax deductible as a business
expense. However in this case where the government paid the ransom the question arises as to the motive. Was it a case of retaliation.
It is common knowledge that IRS’s had summoned Coinbase about coveted anonymity. The interesting part of the ransom is that even though the act of ransom comes from a widespread phishing attempt. It was not pacifically targeting the Pennsylvania’s Allegheny County District Attorney’s Office. The motive behind the ransom seems to be profit and it does not seems to be driven by some kind of ideology.
To understand the case one would have to see both sides, on one side are the hackers that are known as the Avalanche Group that had presumably demanded to be paid in Bitcoin on the other side is the Pennsylvania’s Allegheny County District Attorney’s Office. The reason for demanding the ransom in Bitcoin is that it is much harder to trace a payment done through digital currency as compared to transactions routed through the conventional banking system.
Looking at the ongoing case where the IRS is trying to get the names and details of Bitcoin users from Coinbase assuming that even if it were to succeed in getting the data from Coinbase yet it may be very difficult to trace these transactions to unreported income and taxable transactions.
It is just the beginning of long drawn battle that IRS is waging to uncover user data related to cryptocurrency money. It gives enough reasons for the users to be vary and plan ahead of any development in this regard. What will become of the Bitcoin money paid and the hackers ? Will they be tracked down and have to pay for their deeds only time will tell.
Another direction that the IRS is moving ahead is towards the uncovering of offshore account disclosure enforcement which was started on a relatively small scale.
The IRS started out with just one bank: UBS AG. The government’s focus then turned to other Swiss banks, and eventually to banks all around the world that were hiding U.S. taxpayer’s funds. So Coinbase may be the beginning of the bigger things to come.