© Jim Urquhart / Reuters
A California federal court judge has called on Coinbase Inc., a bitcoin wallet service, to give the IRS records of American user transactions from 2013 to 2015 to conduct an investigation into potential tax fraud.

On Wednesday, the Northern California District Court allowed the Internal Revenue Service to issue a "John Doe" summons to Coinbase in the pursuit of "information about US taxpayers who conducted transactions in a convertible virtual currency during the years 2013 to 2015," the US Department of Justice said. Coinbase is a virtual-currency exchange based in San Francisco, California.

"The taxpayers being investigated have not been or may not be complying with US internal revenue laws requiring the reporting of taxable income from virtual-currency transactions," the IRS wrote in its request for the information, according to The Verge.

Virtual currency transactions are difficult to trace, and the IRS is concerned that anonymous users are hiding taxable income from US authorities. The IRS is targeting Coinbase because the company's records will identify owners of virtual currency wallets.

The John Doe summons is not necessarily an accusation that the company has committed wrongdoing, but is used "to obtain information about possible violations of internal revenue laws by individuals whose identities are unknown," the DOJ said.

In this case, US Magistrate Judge Jacqueline Scott Corley said there was reasonable belief that virtual currency owners are hiding taxable income.

"This John Doe summons directs Coinbase to produce records identifying U.S. taxpayers who have used its services, along with other documents relating to their virtual currency transactions," the DOJ said.

Coinbase argues that the request is a violation of its customers' privacy rights.

"We look forward to opposing the DOJ's request in court after Coinbase is served with a subpoena," a Coinbase spokesman told Reuters.