In a recent ruling, a US Federal court upheld the Internal Revenue Service's (IRS) right to access user data from Coinbase. The case, initiated by James Harper, sought to prevent the tax agency from obtaining his trading records on constitutional grounds.
Harper filed the lawsuit in August 2020, alleging that the IRS, its then-commissioner Charles Rettig, and 10 IRS agents violated his rights through a "John Doe" summons. This legal tactic permits government agencies to request data from a third party concerning an individual or group under investigation for tax evasion.
Referring to a Supreme Court decision in May, the US District Court of New Hampshire concluded that the powers granted to the IRS by Congress meant that Harper did not have additional protections or remedies beyond existing checks on the agency's authority.
Despite maintaining his innocence, Harper had previously argued that the request for his Coinbase trading records violated his Fourth and Fifth Amendment rights. As an early-era crypto trader and former in-house legal consultant for the Bitcoin Foundation, Harper had already challenged the IRS in 2016 when it initially sought user trading records from Coinbase. Although Coinbase initially resisted the requests, it eventually had to comply and provide information, including Harper's records, in response to a separate summons against the exchange.
Harper appealed the decision and was granted the right to sue the IRS in the First Circuit the previous year. The IRS claimed that Harper had not accurately reported his cryptocurrency trades in 2013 and 2014, leading to enforcement actions against him and others.
Since 2016, the IRS has been utilizing John Doe summons for enforcement efforts related to digital assets. In August 2022, a California federal court authorized the IRS to issue a John Doe summons to SFOX, a crypto prime broker based in Los Angeles. The purpose of the summons was to obtain data on US taxpayers who conducted crypto transactions valued at least $20,000 with or through the SFOX platform between 2016 and 2021.
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