REFILE-Bitcoin exchange processor likely to fight IRS summons -legal analyst

(Fixes paragraph 4 to identify CoinFund as blockchain technology research firm rather than Bitcoin exchange firm)

Nov 20 (Reuters) - The largest Bitcoin exchange firm in the U.S. is likely to oppose a summons from the Internal Revenue Services (IRS) seeking the records of all customers who bought virtual currency from the company from 2013 to 2015, a lawyer familiar with the case said Sunday.

On Friday, Coinbase, the country’s largest Bitcoin exchanger, acknowledged it had received a summons sent by the IRS asking for information on its users. Chris Padovano, a lawyer and the founder of Decentralized Legal, said he expects Coinbase to turn back the government’s request.

“It’s very likely, considering their customer base and the philosophical base of most of their users, that Coinbase will challenge this summons,” Padovano told Reuters by telephone. “I think that they need to keep their base somewhat appeased.”

Padovano does not represent Coinbase, but does work with blockchain technology research firm CoinFund.

In responding to the IRS’s summons, which was reported by the New York Times and financial blog ZeroHedge on Friday, Coinbase cited concerns with the wide-ranging nature of the government’s request.

“We want to work with law enforcement - that’s generally our policy,” the company’s head legal counsel, Juan Suarez, said Friday. “But we can’t tolerate sweeping fishing expeditions. We are very concerned about the financial privacy rights of our customers.”

The summons said that an IRS agent recently found three cases involving Bitcoin users who used the cryptocurrency to evade taxes. Two of those cases, the summons alleges, involved Coinbase customers. Additionally, the I.R.S. stated that it knows that Coinbase users have not complied with federal law in the past.

While the case is likely more nuanced, the government may have overreached with its request to gain access to all of Coinbase’s users based on the actions of two, Padovano said. Still, he’s unsure whether there could be a case for the IRS to demand that Coinbase release at least some of its users’ information.

“There are two questions here. One is whether or not (the IRS has) reasonably identified a class of individuals and has a reasonable basis for believing that all U.S. customers for Coinbase from 2013-2015 may have failed to comply with laws based on these three users,” he said. “Two is whether the information sought by IRS is not available from any other reasonable source than Coinbase.” (Reporting by Dion Rabouin; Editing by Sandra Maler)