Coin Center files amicus brief opposing IRS’s overbroad request for Coinbase user data

IRS argument in sweeping request for Coinbase user data could apply to literally anything of value, would set a dangerous precedent.

Coin Center today filed an amicus curiae brief in federal court opposing the IRS’s overbroad and indiscriminate request for Coinbase customer financial records. If enforced, the IRS’s “John Doe” summons would set a dangerous precedent with implications that go far beyond Bitcoin user privacy. We explain in the brief:

The burden falls to the IRS to make make a prima facie showing that its John Doe summons was issued in good faith. The Supreme Court has held that the IRS must begin by demonstrating that the summons “was issued pursuant to a ‘legitimate purpose.’” The Court has insisted that it is the duty of a district court to evaluate that demonstration of purpose and ensure that its own processes for enforcing administrative summonses are not being abused.

Improper purposes include “‘fishing expeditions’ into the private affairs of taxpayers.” and “research projects or inquiries, absent an investigation of taxpayers or individuals and corporations from whom information is sought.” The IRS has provided two declarations thus far in which it attempts to demonstrate that its purposes are legitimate in this investigation. In the more recent declaration, the purpose of the investigation is said to be to “determine the identity and correct federal income tax liability of United States persons who conducted transactions in a convertible virtual currency . . . for the years ended December 31, 2013, 2014, and 2015.”

There is no obvious reason why the IRS could not freely substitute “convertible virtual currency” with any valuable item (e.g. cash, rare books, artwork, or baseball cards) in order to mount investigations seeking the “identity and correct federal income tax liability” for all U.S. persons trading or dealing in those items. If such a simple and sweeping statement of purpose is sufficient to qualify as a legitimate purpose, there would be no meaningful judicial check in place to stop the IRS from using the John Doe summons process to collect the personal records of every person who had bought or sold stocks on the New York Stock Exchange, art within a given time period from Sotheby’s, or rare books from City Lights Booksellers, or made cash deposits or withdrawals at Bank of America.

Fishing expeditions like this are totally unacceptable and outrageous. You can read the full brief here. Coin Center will continue to help digital currency users fight back against these types of improper requests.

Based in Washington, D.C., Coin Center is the leading non-profit research and advocacy center focused on the public policy issues facing cryptocurrency and decentralized computing technologies like Bitcoin and Ethereum. Our mission is to build a better understanding of these technologies and to promote a regulatory climate that preserves the freedom to innovate using permisionless blockchain technologies.