Advisor Philanthropy Advisor Philanthropy Advisor - Uif

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PHILANTHROPY ADVISOR PHILANTHROPY ADVISOR PHILANTHROPY ADVISOR PHILANTHROPY ADVISOR A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS ISSUE 27: WINTER 2022 A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS ISSUE 27: WINTER 2022 Cryptocurrency and Charitable Giving Margaret A. “Meg” Cline, CFA, CFP Vice President for Gift Planning and Trust Services University of Illinois Foundation Harker Hall, MC 386 1305 West Green Street Urbana, Illinois 61801 uif.uillinois.edu phone: (217) 244-0473 email: mcline@uif.uillinois.edu In This Issue: The Basics of Cryptocurrency * Taxation of Cryptocurrency * Charitable Gifts of Cryptocurrency * Cryptocurrency Cases BONUS RESOURCE LIBRARY Planned Giving Answers Online CLICK FOR IN-DEPTH INFORMATION ABOUT CHARITABLE GIVING AND TAX RULES. Elmer Cline walked through the gates at 16th and Georgetown not to see The Greatest Spectacle in Racing—the Indianapolis 500—but to watch the 1921 International Balloon Race at the Indianapolis Motor Speedway. While Cline loved the sight of hot air balloons, he undoubtedly also had work on his mind. Cline was a marketing executive for the Taggart Baking Company, and Taggart was releasing a new sliced bread product to the market but did not yet have a marketing plan. Cline was challenged to find a way to show consumers who were used to baking their own bread at home that commercially produced sliced bread was a good idea. As Cline watched the race begin, he was filled with wonder at the beauty and majesty of the balloons, and that feeling inspired a marketing campaign—the now universally known Wonder Bread with its five colorful circles (representing the balloons Cline saw). More recently, cryptocurrencies have been faced with a similar dilemma. They need to sell people accustomed to government-created and regulated currency on the idea of privately run currency. Acceptance is growing for this digital, decentralized form of private currency. Across the globe, cryptocurrency is filtering into many everyday transactions, including charitable giving. Yet, while some people have embraced it, many others do not have a clear understanding of cryptocurrency or the role it can play in important donations. In this issue of PHILANTHROPY ADVISOR, we start at the beginning by explaining the basics of cryptocurrency, discuss taxation, then branch out into a discussion of how it can fit into a charitable giving plan. We wrap up by reviewing a few legal cases involving cryptocurrency that show how the IRS and the courts look at this relatively new asset. The Basics of Cryptocurrency The idea for a secure digital currency is not a new one. Back in 1995, computer scientist David Chaum introduced a company for digital currency called DigiCash, which pioneered the “blind signature” to encrypt information and data.1 Later, Nick Szabo created Bitgold, Wei Day created B-money, and others soon followed, including Bitcoin, Dogecoin, and Ethereum. Most people recognize those last three names and understand what cryptocurrency is—up to a point. This section is for those who wish to enhance their understanding of the basics before exploring the various ways donors and charities may approach cryptocurrency donations. How is cryptocurrency created? Most cryptocurrencies cannot be created at will by a government but are 1

PHILANTHROPY ADVISOR PHILANTHROPY ADVISOR A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS ISSUE 27: WINTER 2022 instead tied to a process called “mining,” with their security reliant on blockchain.2 Margaret A. “Meg” Cline, CFA, CFP Vice President for Gift Planning and Trust Services University of Illinois Foundation Harker Hall, MC 386 1305 West Green Street Urbana, Illinois 61801 uif.uillinois.edu phone: (217) 244-0473 email: mcline@uif.uillinois.edu What is blockchain? Perhaps the most difficult aspect of creating a new currency is ensuring its security. Consider that our national currency undergoes countless protocols to prevent counterfeiting and catch bad actors in the marketplace. Cryptocurrency’s greatest strength, then, is the reliance on a powerful technology to ensure its validity and combat fraud. Distributed Ledger Technology, more commonly known as blockchain, is what allows cryptocurrencies to function.3 In its simplest terms, blockchain is a ledger that tracks the creation and all verified transactions of every bit of data ever present in the chain. Where a database measures data in tables, the blockchain does so in a sequence, with each block carrying a historical database of all transactions. Once in the sequence, the data cannot be altered, as each transaction is simultaneously verified by every network participant. Let’s imagine that network A was attempting to create a fraudulent transaction with network B. The blockchain would compare the altered ledger to the copy possessed by networks C to Z and detect the fraud. Each transaction is time-stamped, individually encrypted, anonymous, and requires this universal authentication. In business terms, this level of security is comparable to checking every single transaction with the professional accountant of every company in the entire economy. To alter one block in the chain, one entry in the ledger, it would require changing every block in every single chain across every single network. To continue the same analogy, this would be like tricking every accountant in every company in the entire economy. Like everything else online, however, cryptocurrency is not impenetrable. Despite all security measures, the blockchain itself was hacked in 2021. Wallets and exchanges—the methods for storing and using cryptocurrency— have been hacked more frequently. “Cold” wallets, which resemble USB drives and keep the currency offline, appear to offer the safest storage, but individuals run the risk of losing the password and forever losing access to their stored currency. Why is a secure currency volatile? A year after its 2009 launch, Bitcoin (BTC) was worth approximately ten cents per unit. In 2021, its value peaked at nearly 70,000 per unit. What explains such a meteoric rise? Though their production and security rely on modern technology, their valuation is purely Adam Smith, with prices determined solely by demand of a finite supply.4 In other words, cryptocurrencies are not bound to a specific standard (such as the gold standard) or backed by the 2

PHILANTHROPY ADVISOR PHILANTHROPY ADVISOR A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS ISSUE 27: WINTER 2022 promise and goodwill of a government (such as the American dollar), but instead are worth exactly what people believe they are worth for no other reason than the belief itself. With perfectly liquid demand, the value of cryptocurrency could drop precipitously or rise overnight. To help control volatility, most large cryptocurrencies install security features to limit the supply. The most famous and widespread is through mining. Margaret A. “Meg” Cline, CFA, CFP Vice President for Gift Planning and Trust Services University of Illinois Foundation Harker Hall, MC 386 1305 West Green Street Urbana, Illinois 61801 uif.uillinois.edu phone: (217) 244-0473 email: mcline@uif.uillinois.edu What is mining? Cryptocurrency mining is the process by which new currency is unlocked. It requires powerful computers to solve complex math equations. Those involved in reaching the solution first are awarded a new “block” of cryptocurrency to share proportionally based on how much computing power they contributed to the solution. Then the process starts over with a new complex equation. By design, the more computers or networks are active in mining, the more difficult each block or bitcoin is to unlock. Mining was designed to be so intensive for computers that the price of mining would only be slightly below the valuation. In other words, bitcoin mining is a difficult endeavor for individuals without supercomputers.5 To compensate for increasing computing power and the decreasing supply, the number of bitcoins per block is halved every four years. Whereas each block rewarded 50 coins in 2008, by 2020 each block only gave 6.25 coins. There is a finite amount of Bitcoin to be mined: 21,000,000.6 After that point, there will still be transactions and the blockchain will remain present, but no new Bitcoin can be mined. Ethereum uses the same basic mining model as Bitcoin but differs in two primary aspects: its implementation of “difficulty bombs” and the plan to transition to “Proof of Stake” as opposed to the existing “Proof of Work” model they share.7 Whereas Bitcoin simply halves the number of coins present in a block every four years, Ethereum takes a more active approach in creating set points where the computing power required to process the mining spikes dramatically. This allows processing power to catch up before eventually warranting another spike. The “Proof of Stake” switch is more controversial, however. While the switch is intended to reduce the enormous power consumption required in mining, critics claim that the start-up costs of making the transition mean that only large groups (corporations, countries, etc.) would be able to continue mining. Are NFTs related to cryptocurrency? A token refers to a unit of digital currency, and non-fungible tokens (NFTs) are perhaps the most unusual type of cryptocurrency. While a fungible token (like a bitcoin) is identical to every other one and bears equal value, every non-fungible token is unique. Examples of non-fungible tokens range 3

PHILANTHROPY ADVISOR PHILANTHROPY ADVISOR A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS ISSUE 27: WINTER 2022 from the popular pixel art “cryptopunks,” to a recreation of the first ever Twitter message, to the famous “Beeple’s Everydays” which collectively sold for 69.3 million. Critics point to the fact that as digital art, NFTs can easily be copied and saved by even the least computer savvy individual. However, proponents argue that, in essence, a replica of the Mona Lisa does not decrease the value of the original. Margaret A. “Meg” Cline, CFA, CFP Vice President for Gift Planning and Trust Services University of Illinois Foundation Harker Hall, MC 386 1305 West Green Street Urbana, Illinois 61801 uif.uillinois.edu phone: (217) 244-0473 email: mcline@uif.uillinois.edu Is cryptocurrency regulated? From an investment point of view, cryptocurrencies can certainly seem daunting. However, beyond the inherent volatility, the primary concern is the relative lack of regulation and market intervention. Governments and agencies are just now beginning to catch up, with reports that the Biden administration has strongly encouraged Congress to create legislation to officially regulate cryptocurrency in the next year. Failing that, the administration is prepared to issue an executive order expanding IRS and SEC powers to regulate as an agency.8 Taxation of Cryptocurrency The IRS provided guidance to taxpayers in Notice 2014-21, which clarifies that the IRS treats cryptocurrency as property for federal income tax purposes. All the general tax principles that apply to property will apply to cryptocurrency. Upon receipt of cryptocurrency, the taxpayer records the fair market value (FMV) as regular income. FMV is based on an exchange rate. Any change in value after receipt is considered a capital gain or loss, with gains subject to the capital gains tax. Typical cryptocurrency transactions that are taxable include: Exchanging one cryptocurrency for another cryptocurrency Using cryptocurrency or a crypto debit card to pay a merchant Receiving cryptocurrency as payment for goods or services Mining or staking cryptocurrency Receipt of airdropped tokens (typically free tokens distributed to wallets to encourage adoption of a new cryptocurrency) A sale of cryptocurrency for cash Depending on the transaction, the taxpayer may have income tax liability and/or capital gains tax liability. For example, Javier runs an IT consulting business. In July 2020, he agreed to accept cryptocurrency as payment for work completed. Javier declared this income on his 2020 federal income taxes. In September 2021, Javier decided to spend some of it to make a purchase. That transaction would have required Javier to report a capital gain based on its significant increase in value since July 2020. To avoid paying the capital gains tax, Javier decided to instead 4

PHILANTHROPY ADVISOR PHILANTHROPY ADVISOR A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS ISSUE 27: WINTER 2022 use the highly appreciated cryptocurrency to make a planned charitable donation and use cash to make the purchase. Javier was careful to donate the cryptocurrency directly to the qualified charity without cashing it out or converting it to a different type of cryptocurrency, as those are both considered taxable events. In addition, Javier was able to take a larger deduction because he had held onto the cryptocurrency for over a year (making it long-term capital gain property).9 Note: If the cryptocurrency is not a capital asset but is instead a part of the taxpayer’s stock in trade (inventory), then the cryptocurrency Margaret A. “Meg” Cline, CFA, CFP Vice President for Gift Planning and Trust Services Charitable Gifts of Cryptocurrency University of Illinois Foundation Harker Hall, MC 386 1305 West Green Street Urbana, Illinois 61801 The massive expansion of cryptocurrency means more donors have it and are looking to use it to fulfill their charitable goals, particularly if it is highly appreciated. However, for both donors and charities, this is new territory that may require some extra thought and planning. uif.uillinois.edu The first question for donors is whether or not their intended charity accepts gifts of cryptocurrency. At this time, not all charities do, although it is reasonable to expect that the numbers will continue to increase with time. phone: (217) 244-0473 email: mcline@uif.uillinois.edu is taxed as ordinary income and not capital gain.10 Acceptance of Donations If the intended charity does accept cryptocurrency, the donor will have to ascertain the particular method they use for accepting donations. There are currently four main options, with each requiring slightly different actions and responsibilities from both donor and charity. 1. Acceptance directly into a wallet. Just like an individual, a charity may accept cryptocurrency within its “wallet.” Just as it sounds, a cryptocurrency wallet is simply a place, online or offline, to store digital tokens. In this situation, the charity directly accepts the cryptocurrency and is responsible for holding it securely and storing the key necessary to access the currency. The key can be written on paper and safely stored, kept on a flash drive or other storage device, or saved online using storage software or an app. For the donor, this is the most straightforward way to donate cryptocurrency. The charity would need to provide the required paperwork for substantiation of the deduction. 2. Acceptance through a crypto exchange. A charity may also use a cryptocurrency exchange to accept this type of donation. The donor transfers the cryptocurrency to the exchange, which then automatically exchanges it for cash for a transaction fee. This method may be the most straightforward for the charity, as the result is an immediate cash donation. The charity must complete all the donation and substantiation paperwork. 5

PHILANTHROPY ADVISOR PHILANTHROPY ADVISOR A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS ISSUE 27: WINTER 2022 3. Acceptance through a nonprofit cryptocurrency processor. As cryptocurrency became more prevalent, entrepreneurs stepped up with new related enterprises, including nonprofit cryptocurrency processing. These businesses handle cryptocurrency donations and provide the proceeds to the charity for a transaction fee. The processor may provide additional services as well, such as marketing and fundraising programs. Margaret A. “Meg” Cline, CFA, CFP Vice President for Gift Planning and Trust Services University of Illinois Foundation Harker Hall, MC 386 1305 West Green Street Urbana, Illinois 61801 uif.uillinois.edu phone: (217) 244-0473 email: mcline@uif.uillinois.edu 4. Acceptance through another 501(c)(3). A qualified charity may use another qualified charity or a donor-advised fund as an intermediary to accept donations of cryptocurrency. The intermediary charity will accept the cryptocurrency and provide all transaction and substantiation documents for the donor, then convert the cryptocurrency to cash and forward the cash to the intended charity. Gift Substantiation As with other gifts, a charitable gift of cryptocurrency that is over 500 requires the taxpayer to include a description of the donated property with the tax return. The taxpayer must generally keep gift records showing the name and address of the donee organization, the date and location of the contribution, a description of the cryptocurrency, the fair market value of the property at the time of the contribution (along with how the FMV was determined), and the basis of the property. (See IRC §170(e)) Obviously, the FMV of cryptocurrency can be very volatile, and some taxpayers may not keep close track of the basis or the holding period of each cryptocurrency acquisition. However, to obtain a charitable deduction at FMV, the taxpayer must have held the cryptocurrency longer than one year. (For cryptocurrency held less than one year, the charitable deduction is limited to the cost basis or original purchase price.) Ideally, the taxpayer should specify the exact cryptocurrency to be donated using its digital identifier (public key, private key, or transaction details) and include: the acquisition date and time for each unit the basis and the FMV of each unit at acquisition the donation date and time for each unit, and the FMV of each unit when donated If the gift of cryptocurrency is worth 5,000 or more, the taxpayer must obtain a qualified appraisal (completed by a qualified appraiser) and include an appraisal summary with the tax return. For a gift worth 500,000 or more, the taxpayer must obtain a qualified appraisal and attach a copy of the appraisal (not just an appraisal summary) to the income tax return. 6

PHILANTHROPY ADVISOR PHILANTHROPY ADVISOR A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS ISSUE 27: WINTER 2022 Deduction Issues Because cryptocurrency is easier to transfer than cash, donors may forget (either in fact or constructively) to correctly report the cryptocurrency gift as a gift of property. Such a mistake can put the charitable deduction in jeopardy. Margaret A. “Meg” Cline, CFA, CFP Vice President for Gift Planning and Trust Services University of Illinois Foundation Harker Hall, MC 386 1305 West Green Street Urbana, Illinois 61801 uif.uillinois.edu phone: (217) 244-0473 email: mcline@uif.uillinois.edu In addition, donors must consider the percentage limitation on charitable donations. A gift of cash to a 50% organization (such as churches, educational organizations, hospitals, medical research organizations, community foundations that meet the public support test, governmental units, and certain types of private foundations) is deductible up to 60% of the donor’s adjusted gross income (AGI). However, since cryptocurrency is treated as property and not cash, a donation to a 50% organization of cryptocurrency held over one year (appreciated, long-term capital gain property) is limited to a deduction of 30% of the donor’s AGI. Cryptocurrency Cases As cryptocurrency becomes more prevalent in the economy, more cryptocurrency holders will be involved in litigation. These cases help financial professionals as they work with clients to design estate and financial plans, as they help clarify how the IRS and the courts view this relatively new asset. Defining Cryptocurrency CFTC v. McDonnell, 287 F. Supp. 3d 213 (E.D.N.Y. 2018) Plaintiff: Commodity Futures Trading Commission Defendant: Patrick K. McDonnell and Cabbagetech, Corp. d/b/a Coin Drop Markets The Commodity Futures Trading Commission (CFTC) oversees derivative trades in the United States. The CFTC sued McDonnell and Coin Drop Markets for operating an elaborate scheme purporting to offer trading advice alongside the opportunity to buy and sell virtual currencies either presently or in the future. In fact, McDonnell and Coin Drop took the investors’ deposits, believing that because the deposits were in the form of various cryptocurrencies, the fraud was safe from legal action. McDonnell even filed a motion to dismiss the injunction and subsequent discovery. McDonnell’s case hinged on the definition of virtual currency (cryptocurrency) and how it interacts with the CFTC. As the Court succinctly stated, “until Congress clarifies the matter, the CFTC has concurrent authority, along with other state and federal administrative agencies, and civil and criminal courts, over dealings in virtual currency.” Therefore, McDonnell’s motion to dismiss failed and the court granted the CFTC their injunction. 7

PHILANTHROPY ADVISOR PHILANTHROPY ADVISOR A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS Margaret A. “Meg” Cline, CFA, CFP Vice President for Gift Planning and Trust Services University of Illinois Foundation Harker Hall, MC 386 1305 West Green Street Urbana, Illinois 61801 uif.uillinois.edu phone: (217) 244-0473 email: mcline@uif.uillinois.edu ISSUE 27: WINTER 2022 In his interpretation, Judge Weinstein of New York made a clarification that could soon have wider ramifications. He noted that as cryptocurrency is currently used as a payment for goods, services, and debts, it already meets the definition of currency, even though it is not yet recognized by the United States as legal tender that must be accepted. While the direct precedential power of this statement is limited to the Southern District of New York, judges often look to other districts or even lower courts when addressing new or unique issues. Judge Weinstein’s optimistic and unrestrictive view of cryptocurrency might play a role in determining how it is classified in the United States. Cryptocurrency as a Unique Asset Strashny v. Commissioner, No. 13836-19L, 2020 Tax Ct. (T.C. June 11, 2020) Plaintiff: Alexander and Laura Strashny Defendant: Commissioner of the Internal Revenue Service The petitioners, Alexander and Laura Strashny, filed tax returns but did not pay the amount specified. Instead, they cited undue hardship in their request to pay in a 6-year installment. The IRS declined their petition, noting their cryptocurrency holdings were worth at least 7 million. The Strashnys filed for summary judgment, citing abuse and contending cryptocurrencies did not qualify the same as other property in denying an installment agreement. Ultimately, the court ruled in favor of the commissioner. The Strashnys were withdrawing approximately 19,000 each month from their cryptocurrency accounts, clearly showing they were able to rely consistently on the liquidity of those assets. In addition, the Strashnys refused to explain why their cryptocurrency deserved special qualification compared to other assets. The IRS’ Ability to Obtain Cryptocurrency Records COINBASE, INC., et al., Respondents. Case No.17-cv-01431-JSC, 120 A.F.T.R.2d 2017-6671, 2017-2 USTC P 50,423 Petitioner: United States Department of Justice Respondent: COINBASE, INC., et al. The IRS attempted to obtain a significant number of records from cryptocurrency firm Coinbase using a “John Doe” administrative summons to identify taxpayers who engaged in cryptocurrency transactions but did not declare those transactions for tax purposes. The IRS estimated that out of the 5.9 million users of Coinbase, approximately 800-900 reported property transactions of cryptocurrency. The IRS summons to Coinbase sought “information regarding United States persons who at any time during the period January 1, 2013, through 8

PHILANTHROPY ADVISOR PHILANTHROPY ADVISOR A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS ISSUE 27: WINTER 2022 December 31, 2015, conducted transactions in a convertible virtual currency as defined in IRS Notice 2014-21.” The IRS specified that it wanted “nine categories of documents including: complete user profiles, knowyour-customer due diligence, documents regarding third-party access, transaction logs, records of payments processed, correspondence between Coinbase and Coinbase users, account or invoice statements, records of payments, and exception records produced by Coinbase’s AML system.” Margaret A. “Meg” Cline, CFA, CFP Vice President for Gift Planning and Trust Services University of Illinois Foundation Harker Hall, MC 386 1305 West Green Street Urbana, Illinois 61801 uif.uillinois.edu phone: (217) 244-0473 email: mcline@uif.uillinois.edu Subsequently, the IRS presented a narrowed summons seeking information on accounts likely related to bitcoin that had 20,000 in any one transaction type (buy, sell, send, or receive) in any one year during the 2013-2015 period. Coinbase stated that the narrowed summons involved information for 8.9 million transactions and 14,355 account holders. For these account holders, the IRS sought: Account/wallet/vault registration records for each account/wallet/vault owned or controlled by the user during the period stated above limited to name, address, tax identification number, date of birth, account opening records, copies of passport or driver’s license, all wallet addresses, and all public keys for all accounts/wallets/vaults. Records of Know-Your-Customer due diligence. Agreements or instructions granting a third party access, control, or transaction approval authority. All records of account/wallet/vault activity, including transaction logs or other records identifying the date, amount, and type of transaction (purchase/sale/exchange), the post-transaction balance, and the names or other identifiers of counterparties to the transaction; requests or instructions to send or receive bitcoin; and, where counterparties transact through their own Coinbase accounts/wallets/vaults, all available information identifying the users of such accounts and their contact information. Correspondence between Coinbase and the user or any third party with access to the account/wallet/vault pertaining to the account/wallet/vault opening, closing, or transaction activity. All periodic statements of account or invoices (or the equivalent). Coinbase objected to the broad nature of the subpoena and challenged the supporting affidavit for the summons, noting that the taxpayers may have reported bitcoin income in another manner, that the term “likely related to bitcoin” is too vague, and that the narrowing of the subpoena was arbitrary. The court found the Coinbase arguments unpersuasive, but while the court agreed that the IRS request for identification and transaction information was appropriate, the court was critical of the too-broad nature of the IRS request: 9

PHILANTHROPY ADVISOR PHILANTHROPY ADVISOR A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS A TECHNI CA L RE S OU RC E F OR P ROF E S S IONAL ADV IS ORS Margaret A. “Meg” Cline, CFA, CFP Vice President for Gift Planning and Trust Services University of Illinois Foundation Harker Hall, MC 386 1305 West Green Street Urbana, Illinois 61801 uif.uillinois.edu phone: (217) 244-0473 email: mcline@uif.uillinois.edu ISSUE 27: WINTER 2022 The Government claims to need these records to verify an account holder’s identity and determine if the holder used others to make transactions on the account holder’s behalf. However, at this stage, where the Government is seeking records on over 10,000 account holders, these requests seek information that is “broader than necessary.” See Bisceglia, 420 U.S. at 151. The first question for the IRS is whether an account holder had a taxable gain. If the account holder did not, then correspondence between Coinbase and a user is not even potentially relevant. Similarly, while the Government needs an account holder’s name, date of birth, taxpayer identification and address to determine if a taxable gain was reported, it only needs additional identity information such as copies of passports and driver’s licenses or “Know Your Customer” due diligence if there is potentially a taxable gain and if there is some doubt as to the taxpayer’s identity. If there is not, these additional records will not shed any light on a legitimate investigation. The court granted the IRS’ summons in part. It denied all document requests except the following, ordering Coinbase “to produce the following documents for accounts with at least the equivalent of 20,000 in any one transaction type (buy, sell, send, or receive) in any one year during the 2013 to 2015 period: 1. the taxpayer ID number 2. name 3. birth date 4. address 5. records of account activity including transaction logs or other records identifying the date, amount, and type of transaction (purchase/sale/ exchange), the post-transaction balance, and the names of counterparties to the transaction, and 6. all periodic statements of account or invoices (or the equivalent).” Cryptocurrenc

ADVISOR VISORS ADVISOR ISSUE 27: WINTER 2022VISORS Margaret A. Meg Cline, CFA, CFP Vice President for Gift Planning and Trust Services University of Illinois Foundation Harker Hall, MC 386 1305 West Green Street Urbana, Illinois 61801 uif.uillinois.edu phone: (217) 244-0473 email: mcline @ uif.uillinois.edu

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