IRS Scores Victory: Court Rules in Favor of Document Seizure in Coinbase Case

A US Federal Court has upheld the Internal Revenue Service’s (IRS) authority to seize user data from Coinbase, one of the leading cryptocurrency exchanges. The court ruling dismisses claims that the tax body’s action infringes constitutional rights.

The Case in Retrospect

James Harper, the plaintiff, launched a legal challenge against the IRS, its then-commissioner Charles Rettig, and ten other IRS agents back in August 2020. Harper asserted that the IRS infringed upon his rights by obtaining trading records via a ‘John Doe’ summons.

‘John Doe’ summons is a conventional strategy employed by various government bodies. It permits the legal request of third-party data belonging to an individual or a group, primarily used for inspecting potential tax evasion cases.

The Court’s Judgment

The US District Court of New Hampshire, in its decision, referred to a Supreme Court ruling from May. It stated that the powers granted to the IRS by Congress implied that Harper wasn’t eligible for protection or relief beyond the existing “checks on the IRS’ powers,” as per the court documents published on Law360.

Harper, insisting on his innocence, had tried to argue that the IRS’s request for his Coinbase trading records violated his rights under the Fourth and Fifth Amendments.

An early Bitcoin trader and former legal consultant for the Bitcoin Foundation, Harper had previously contested the IRS’s initial demand for Coinbase to surrender all user trading records. He filed an amicus brief in 2016 in opposition to the IRS’s request.

However, Coinbase, after initially disregarding the IRS’s demands, was compelled to surrender some of its largest user’s information, including Harper’s, following a separate summons against the exchange in the subsequent year.

Last year, Harper was granted the right to sue the IRS in the First Circuit following an appeal. The IRS accused Harper of failing to declare his cryptocurrency trades adequately in 2013 and 2014, leading to legal actions against him and others.