The US government has been auditing Bitcoin user William Zietzke since 2017. The Internal Revenue Service (IRS) USA is conducting the investigation.
If the US Internal Revenue Service (IRS) wins the legal battle that it has held with William Zietzke since 2017, the privacy of thousands of Bitcoin holders will be at risk.
William Zietzke is a systems engineer that mined Bitcoin as an experiment in 2011. His story shows evidence of the possible plans of the IRS for all cryptocurrency users in the future. It all started when Zietzke made a mistake in his income-tax return in 2017. He declared the gains in his cryptocurrency holdings in 2016 in his 2017 tax return.
After hiring an accountant in 2017, the user realized his mistake, as published on Reason.com. Faced with the situation, Zietzke amended his return, eliminating USD 104,482 in capital gains and causing a refund of USD 15,475. He said that he had never found himself in a situation like that before. He said that those that play “tax optimization games” understand exactly how to “dot each I and cross each T,” which he did not.
The aforementioned refund caught the IRS’s attention, which immediately led them to audit Zietzke, who had declared his income in Bitcoin since 2013. In this way, he was ahead in terms of cryptocurrency tax returns, since the IRS issued the guidelines on Bitcoin taxes in 2014. The audit process was complicated from the beginning, but Zietzke provided the entity with a large amount of information to satisfy its demands and quickly solve the problem.
Relentless Struggle for Privacy
The Bitcoin user-provided accounting data for his taxable Bitcoin transactions in 2016, screenshots of his activity on Purse.io and Coinbase, his activity log on Armony, and the software he used to manage some of his BTC. He also reported bank statements to confirm the cost base of the BTC that he purchased through Coinbase. However, Zietzke’s biggest mistake was to include the public addresses of his wallets in the information that he gave to the IRS.
Due to the transparency of the Bitcoin blockchain, the public addresses allow anyone to monitor a user’s movements. It is only a matter of knowing whose address to monitor.
A year later, Zietzke received a letter saying that he was unable to satisfy IRS requests. For that reason, they issued a citation to the Bitstamp and Coinbase platforms, and Zietzke himself to receive more than public addresses. They were demanding the identities, and wallet addresses, of those that conducted transactions with him through the exchanges.
He filed motions to void the summons to Bitstamp and Coinbase and has not yet complied with IRS demands. He said that he would be giving them complete access to his financial activity if he did that. However, the IRS insists that he can prove his innocence only by allowing them to examine the transactions of all the Bitcoin wallets that he had in that year.
If the IRS gets what it wants from Zietzke, thousands of Bitcoin users in the USA could eventually be in William Zietzke’s current position. It is worth noting that, last year, the US Congress demanded clearer rules on crypto assets from the IRS.
By Alexander Salazar
