Supreme Court Weighs IRS Crypto Tax Case

The US government has urged the Supreme Court to reject a Coinbase user's challenge to an IRS request for his cryptocurrency transaction records. Solicitor General D. John Sauer argued in a May 30 filing that Coinbase user James Harper has no Fourth Amendment right to protect his data held by the exchange.

Coinbase User Challenges IRS Access to Crypto Records

The government contends that Harper voluntarily shared his data with Coinbase, and the IRS followed proper legal procedures to obtain it via a judicially approved summons. This case stems from a 2016 IRS investigation into underreported cryptocurrency gains, revealing a significant discrepancy between the number of Coinbase users trading Bitcoin (BTC) and those reporting profits.

The IRS used a "John Doe" summons to compel Coinbase to provide records of high-volume users. Harper sued, arguing the IRS’s actions constituted an unconstitutional search. Lower courts disagreed, ruling Coinbase's records are business documents, not Harper's private papers, and that the IRS acted lawfully. The government cites Supreme Court precedent, particularly United States v. Miller, emphasizing that individuals lack a reasonable expectation of privacy in financial records held by third parties.

The government also references Coinbase's privacy policy, which informs users that their data may be shared with law enforcement. The Supreme Court's decision will determine whether the First Circuit's ruling in favor of the IRS stands.

Coinbase Data Breach Context

This case unfolds against the backdrop of a May 15 Coinbase data breach, where attackers compromised sensitive user information, including names, account balances, and transaction histories. Approximately 1% of monthly transacting users were affected. This breach resulted in multiple lawsuits against Coinbase for alleged security failures and inadequate response.

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