US court says IRS has legal authority to access Coinbase users’ trading data

A federal court ruled that the IRS has the legal authority to access Coinbase users’ trading data via a “John Doe” summons, and doing so is not a violation of constitutional rights, according to court filings.

The ruling was made in a case filed by James Harper against the IRS in 2020. The suit sought to block the tax authority’s access by arguing that it was a violation of Harper’s Fourth and Fifth Amendment rights.

However, the U.S. District Court of New Hampshire said the powers afforded to the IRS by Congress allow it to access any information knowingly shared with a third party, and the tax authority had satisfied all constitutional requirements before issuing the summons.

Thus, Harper is not entitled to any protections as he did not have “a reasonable expectation of privacy in Coinbase’s records of his account.”

The court further stated that the trading records at Coinbase are akin to financial records at a bank and cannot be protected under constitutional rights.

Additionally, Coinbase’s privacy policy clearly warned Harper that his information may be shared with law enforcement and government officials if “compelled to do so by subpoena, court order or similar legal procedure.”

The court also rejected Harper’s arguments that the IRS should have used different procedures and said the agency did not violate any procedural or operational laws in the case.

Harper v. IRS

Harper’s battle with the IRS began in 2016 after the agency issued a John Doe summons requesting a swathe of user information from Coinbase, which included user trading records.

The IRS alleged that these users — including Harper — had failed to adequately declare their crypto trades during 2013 and 2014 and may have violated tax laws.

He filed an amicus brief the same year to try and block the IRS from accessing Coinbase user information.

However, in 2017, the exchange 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.

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