Federal Court Rules IRS Can Access Coinbase User Data Via “John Doe” Summons

Federal Court Rules IRS Can Access Coinbase User Data Via “John Doe” Summons

A federal court has ruled that the Internal Revenue Service (IRS) has the legal authority to access Coinbase users’ trading data via a “John Doe” summons, and doing so is not a violation of constitutional rights. The court made the ruling in a case filed by James Harper against the IRS in 2020. Harper had sought to block the tax authority’s access by arguing that it was a violation of his Fourth and Fifth Amendment rights. However, the US District Court of New Hampshire said that the powers afforded to the IRS by Congress allow it to access any information knowingly shared with a third party, and the tax authority had satisfied all constitutional requirements before issuing the summons.

Court Denies Harper’s Claim to Privacy Protections

The court also stated that the trading records at Coinbase are akin to financial records at a bank and cannot be protected under constitutional rights. Harper is not entitled to any protections as he did not have “a reasonable expectation of privacy in Coinbase’s records of his account.” Additionally, Coinbase’s privacy policy clearly warned Harper that his information may be shared with law enforcement and government officials if “compelled to do so by subpoena, court order or similar legal procedure.”

Court Rejects Harper’s Arguments Against IRS Procedures

The court also rejected Harper’s arguments that the IRS should have used different procedures and said the agency did not violate any procedural or operational laws in the case. Harper’s battle with the IRS began in 2016 after the agency issued a John Doe summons requesting a swathe of user information from Coinbase, which included user trading records. The IRS alleged that these users, including Harper, had failed to adequately declare their crypto trades during 2013 and 2014 and may have violated tax laws.

Background and Appeal of the Case

Harper filed an amicus brief in 2016 to try to block the IRS from accessing Coinbase user information. However, in 2017, the exchange was forced to hand over trading data and basic user information of some of its largest users, including Harper, after the IRS narrowed its request and secured court approval. Harper appealed the case and was granted the right to sue the IRS in 2022 after a First District court ruled that taxpayers are entitled to question the agency’s information-gathering tactics.

The ruling by the US District Court of New Hampshire has established that the IRS has the legal authority to access Coinbase user data via a John Doe summons, and doing so is not a violation of constitutional rights. The court stated that the trading records at Coinbase are akin to financial records at a bank and cannot be protected under constitutional rights. The court also rejected Harper’s arguments against the IRS procedures, and Harper was not entitled to any protections as he did not have a reasonable expectation of privacy in Coinbase’s records of his account.

Regulation

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