William Zietzke Suffers Another Defeat in IRS Inquiry Defense 

IRS Clarifies On Crypto Taxes; Users Seek Tax Software for Simplification

A federal judge in California has ruled that the Internal Revenue Service (IRS) is perfectly within its right to request user account information from cryptocurrency exchange Bitstamp. According to a filing published on November 25, the court expressed its belief that while the IRS did go overboard in its request, there was no evidence to prove that the tax authority had conducted any of its inquiries in bad faith.

A Filing Mistake Leads to a Surveillance Dispute

The filing is the latest in the save involving William Zietzke, an American cryptocurrency investor, and the IRS over his taxation records. Zietzke had filed a capital gains tax of $104,482 back in 2016, with the majority of his taxable transactions involving crypto assets.

However, he later discovered that most of his transactions had occurred in 2017, and he corrected his filing with a revised capital gains tax of $410 for 2016, asking later for a refund of the difference. Suspecting foul play, the IRS audited his transactions, but were unable to get records on their own. So, they sent letters to several exchanges (including Butstamp and Coinbase) requesting for the details of his Bitcoin transactions and how much he had indeed engaged in taxable transfers. 

When he got wind of this, Zietzke immediately filed to stop the action, accusing the tax authority of stepping beyond its bounds and acting in bad faith. He also reckoned that the IRA has all it needed to audit his accounts — adding that the summons they sent to these colonies was a violation of his Fourth Amendment rights to reasonable privacy. 

Relevant Information Only 

Per the new filing, the investor had accused the IRS of administrative missteps, while also questioning the government’s ability to ensure the security of his transaction records after they have been perused. Responding, the court claimed that the IRS has sought both relevant and irrelevant material, and had overstepped its bounds. However, Bitstamp will still have to comply with the summons nonetheless. 

“Relating to the Petitioner’s Bitcoin sales before 2016—even though such sales could not impact the gain or loss Petitioner realized if he sold Bitcoins in 2016. In this way, the summons requests information that is irrelevant to the IRS’s stated purpose of auditing Petitioner’s 2016 amended return,” the release noted 

This is the second defeat that Zietzke is facing at the hands of the IRS week, as Judge John Coughenour of the U.S. District Court for the Western District of Washington announced on Monday that the IRS is perfect toy within its rights to examine his cryptocurrency transactions.

Just like today’s ruling, the District Court judge cautioned the IRS as well, stating that the tax authority should also narrow the scope of its inquiry before proceeding. 

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About Jimmy Aki

Jimmy has been following the development of blockchain for several years, and he is optimistic about its potential to democratize the financial system.