- A US federal court has ruled that the IRS has the legal authority to access Coinbase users’ trading data, stating that these records are akin to financial records at a bank and are not protected under constitutional rights.
- The court rejected arguments that the IRS should have used different procedures, stating that the agency did not violate any procedural or operational laws in the case.
In a landmark ruling, a US federal court has granted the Internal Revenue Service (IRS) the legal authority to access trading data of users on Coinbase, a leading cryptocurrency exchange. The court stated that trading records on Coinbase are similar to financial records at a bank and thus, cannot be protected under constitutional rights.
This ruling was made in a case filed by James Harper against the IRS in 2020. Harper sought to block the tax authority’s access to his trading data, arguing that it violated his Fourth and Fifth Amendment rights. However, the U.S. District Court of New Hampshire disagreed, stating that the powers given to the IRS by Congress allow it to access any information knowingly shared with a third party. The court further clarified that the IRS had satisfied all constitutional requirements before issuing the summons.
The court also stated that Harper did not have a “reasonable expectation of privacy” in Coinbase’s records of his account. This is because Coinbase’s privacy policy had clearly warned Harper that his information could be shared with law enforcement and government officials if compelled to do so by subpoena, court order, or similar legal procedure.
The court dismissed Harper’s arguments that the IRS should have used different procedures, stating that the agency did not violate any procedural or operational laws in the case.
This case began in 2016 when the IRS issued a John Doe summons requesting a wide range of user information from Coinbase, including user trading records. The IRS alleged that these users, including Harper, had failed to adequately declare their crypto trades during 2013 and 2014, potentially violating tax laws.
In 2017, Coinbase was forced to hand over trading data and basic user information of some of its largest users, including Harper, after the IRS narrowed its request and secured court approval. Harper appealed the case and was granted the right to sue the IRS in 2022 after a First District court ruled that taxpayers are entitled to question the agency’s information-gathering tactics.
In conclusion, this ruling marks a significant development in the ongoing debate about privacy and transparency in the crypto industry. It underscores the need for crypto traders to be aware of their tax obligations and the potential for their trading data to be accessed by tax authorities.
