Bitcoin users face increasing pressure from the IRS to disclose private information unrelated to taxation purposes. This follows a recent IRS summons against the Bitcoin trader Coinbase, calling for the mandatory collection of detailed customer data.
In 2015, the IRS concluded that bitcoin holders “may fail, or may have failed, to comply with one or more provisions of the internal revenue laws” and that the solution was to demand all US user records from 2013 – 2015 from Coinbase that include transaction history, IP addresses and transcripts with customer support.
This comes despite the IRS having failed to provide comprehensive guidance for bitcoin owners since classifying the currency as property, subject to property tax laws, in 2014.
Perianne Boring, President of the Chamber of Digital Commerce says that if the IRS succeeds in violating consumer privacy, this “would set a terrible precedent.” She added that many bitcoin firms and users are “afraid to speak out” because of the fear of being “directly targeted by the IRS.”
Brian Armstrong, Coinbase founder and CEO made a public statement to voice his concerns against the subpoena. “Asking for detailed transaction information on so many people, simply for using digital currency, is a violation of their privacy, and is not the best way for us to accomplish our mutual objective.” By taking action that is “overly broad,” he continued, “the IRS incorrectly implies that all users of virtual currency are evading taxes.”
Bitcoin advocacy groups have emerged in response to this, calling on federal and state governments to provide a better regulatory and taxation framework for digital currencies.
The Digital Assets Tax Policy Coalition for example has been created  to “develop effective and efficient tax policies for the growing virtual currency markets.” The Blockchain Alliance has likewise been facilitated to “open dialogue between the private and public sectors about digital assets and Blockchain technology.”
Bridging the gap between government hurdles and an industry that has risen to $20 billion in market value is increasingly necessary for all stakeholders. A recent Business Intelligence Insider report shows that the current complexity of the US regulatory system is a major hindrance to the development of a “coherent fintech policy.” Moreover, it concludes that without allowing digital commerce  to “achieve a scale necessary for success,” the U.S. will continue falling behind the UK and some areas of Europe.

Creating a taxation framework that is stable and standardized, adaptable to digital trends, and maintains basic privacy standards is key to the broader development of the US bitcoin industry.