In other words, the IRS believes that buying Bitcoin is probable cause for making an individual the subject of a tax evasion investigation.
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Coinbase was the first fully licensed U.S.-based Bitcoin exchange, opening in January of 2015. It is now one of the largest Bitcoin exchanges handling dollar-bitcoin trades, though it still relatively small compared to exchanges catering to the massive Chinese cryptocurrency market.
The legal and tax status of Bitcoin has been a question mark since nearly its inception. One major early uncertainty was whether Bitcoin would be treated as a currency or as property for tax purposes. Many Bitcoin supporters argued that it should be treated as a currency, potentially simplifying their tax situation.
But in 2014, the IRS declared virtual currency would be taxed as property, and affirmed standard reporting requirements for any payments made with it.
But many of the early adopters of Bitcoin, including many who made small fortunes from the currency’s rise, were hardline techno-libertarians, and not terribly likely to submit voluntarily to such requirements. The IRS request to Coinbase indicates that Bitcoin will be brought increasingly into the light of the U.S. tax system, like it or not.
Coinbase says its lawyers are still considering a response. Bitcoin, now valued at $725 per coin, has nearly doubled in value since January.
(Disclosure: The author had a Coinbase account and received small Bitcoin payments in connection with writing and research about Bitcoin in 2014.)