IRS Can Access Coinbase User Trading Data, Court Rules

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A US Fed­er­al court has ruled the Inter­nal Rev­enue Ser­vice (IRS) is with­in its right to access Coin­base user data, in a case which sought to block the tax agency on con­sti­tu­tion­al grounds.

Plain­tiff James Harp­er filed suit in Aug. 2020 against the IRS, its then-com­mis­sion­er Charles Ret­tig and 10 IRS agents. It alleged they had vio­lat­ed his rights to obtain trad­ing records through what’s known as a “John Doe” summons.

John Doe sum­mons — a com­mon tac­tic used by mul­ti­ple gov­ern­ment agen­cies — essen­tial­ly affords the legal right to request a third par­ty hand over data belong­ing to an indi­vid­ual or group of indi­vid­u­als for tax eva­sion checks.

The US Dis­trict Court of New Hamp­shire, cit­ing a May Supreme Court rul­ing, said the agency’s pow­ers afford­ed to it by Con­gress meant Harp­er was not enti­tled to pro­tec­tions or relief beyond exist­ing “checks on the IRS’ pow­ers,” accord­ing to court doc­u­ments host­ed by Law360.

Harp­er, who main­tained his inno­cence, had pre­vi­ous­ly attempt­ed to argue that such a request for his inter­nal Coin­base trad­ing records vio­lat­ed his Fourth and Fifth amend­ment rights.

An ear­ly-era cryp­to trad­er and for­mer in-house legal con­sul­tant for the Bit­coin Foun­da­tion, Harp­er filed an ami­cus brief in 2016, fight­ing against the agency’s ini­tial request for Coin­base to hand over all user trad­ing records.

Despite ignor­ing requests from the agency, Coin­base was report­ed­ly forced to hand over some of its largest user’s infor­ma­tion, includ­ing Harper’s, fol­low­ing a sep­a­rate sum­mons against the Delaware-reg­is­tered exchange a year later.

Harp­er lat­er appealed and was grant­ed the right to sue the IRS in the First Cir­cuit last year. The IRS alleged Harp­er had failed to ade­quate­ly declare his cryp­to trades in 2013 and 2014, prompt­ing action from the agency against him and others. 

Since 2016, the agency has been using John Doe sum­mons for dig­i­tal asset enforce­ment efforts. 

In Aug. 2022, a Cal­i­for­nia fed­er­al court grant­ed an order allow­ing the IRS to issue a John Doe sum­mons to SFOX, a Los Ange­les-based cryp­to prime broker. 

The order sought data on US tax­pay­ers who, between 2016 and 2021, con­duct­ed cryp­to trans­ac­tions val­ued at least $20,000 with or via the SFOX platform.


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