Late last year the IRS petitioned to file a “John Doe Summons” for all Coinbase users active between 2013 and 2015.
Coin Center was quick to respond, calling out the dangerous precedent that that such a petition would create if granted:
The Fourth Amendment to our Constitution protects "the right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures[.]" It aims to accomplish that, in part, by prohibiting general warrants that give government agents broad authority to search unspecified places or persons. While the courts have weakened Fourth Amendment protections when a third party like a bank or business keeps your information, the tide has begun to turn back. Courts have begun to recognize that there must be some limits as more and more of our private data is stored not in our homes, but in "the cloud." If the IRS can get a summons to search all users of bitcoin, it may only be a matter of time before it can get one targeting all video gamers or all eBay shoppers and sellers.
Now, some customers of Coinbase who would be affected by the summons have petitioned the court to intervene on their own behalf. Yesterday we learned that the court granted their petition. In doing so, the court made some similar points:
[The IRS] contends that “there seems to be a substantial gap between the number of people transacting in virtual currency (for which tax consequences might attach) and those that are reporting such transactions.” (Dkt. No. 28 at 13.) But that argument proves too much. Under that reasoning the IRS could request bank records for every United States customer from every bank branch in the United States because it is well known that tax liabilities in general are under reported and such records might turn up tax liabilities. It is thus no surprise that the IRS cannot cite a single case that supports such broad discretion to obtain the records of every bank-account holding American.
With this motion granted, the users of Coinbase will have an anonymous representative challenging the IRS petition in addition to Coinbase. This means that even if Coinbase decides to drop its challenge, there will still be an interver challenge to the summons sticking up for privacy, and that’s a good thing. We will continue watching this case and advocating for consumer privacy. For now at least, it seems as though the court agrees with our assessment: that the IRS’s petition is dangerously overbroad.