A recent decision by a US Federal court determined that the Internal Revenue Service (IRS) is justified in accessing user data from Coinbase. The case was brought forward by James Harper, who aimed to prevent the tax agency from obtaining his trading records on constitutional grounds.
Harper’s lawsuit, filed in August 2020, accused the IRS, its then-commissioner Charles Rettig, and 10 IRS agents of violating his rights through a “John Doe” summons. This legal tactic allows government agencies to request data from a third party related to an individual or group for tax evasion investigations.
Referencing a Supreme Court ruling in May, the US District Court of New Hampshire stated that the powers granted to the IRS by Congress meant that Harper did not have any additional protections or recourse beyond existing checks on the agency’s authority.
Harper, who professed his innocence, 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 Coinbase’s user trading records. Despite Coinbase initially refusing the requests, it eventually had to hand over 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 in the previous year. The IRS claimed that Harper had not properly reported his cryptocurrency trades in 2013 and 2014, leading to enforcement actions against him and others.
The IRS has been utilizing John Doe summons for digital asset enforcement efforts since 2016. 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 summons aimed 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.