A Federal Judge has ruled an anonymous customer of the Bitcoin exchange company Coinbase has the right to contest a disclosure summons issued last year.
Last November, the [geolink href=”https://www.usafriendlypokersites.com/irs-files-coinbase-reveal-list-us-customers/”]IRS filed a request[/geolink] to access details of Coinbase´s database of US customers in order to uncover potential tax evasion. The request was granted, but execution of the subpoena was [geolink href=”https://www.usafriendlypokersites.com/coinbase-fights-back-irs-bitcoin-summons/”]delayed due to legal challenges[/geolink] made by Coinbase and one of the company´s customers – Jeffery Berns.
The legal challenges claimed the request to access details of every Coinbase account, transaction, balance information, users´ security settings, profile changes, payment methods and devices used to access the accounts between 31 December 2013 and 31 December 2015 was overbearing.
Coinbase argued that the execution of the subpoena would
negatively impact its financial profits or its valuation, while Berns contested that the subpoena was too broad because it included customers like him who had done nothing illegal. The two parties were given until March to prepare their cases.
More Parties Enter the Fray as Goalposts Get Moved
In March, the IRS successfully argued that, as Berns had “outed” himself as a Coinbase customer, he was no longer subject to the summons, making his motion to intervene in the case moot. Berns – a California-based lawyer – withdrew his case, but then acted as the legal representative for two new parties who were able to maintain their anonymity in order to circumnavigate the IRS´ argument.
The IRS then moved the requests´ goalposts so that, rather than seeking details of every Coinbase account, it sought only the details of Coinbase accounts that had transacted more than $20,000 in any single year. This excluded both the new parties from the investigation; however, Berns was able to find a fourth party who did qualify to contest the case under the revised criteria.
Judge Allows Fourth Party to Intervene
At the end of last week, U.S. Magistrate Judge Jacqueline Corley of the Northern District of California ruled that the fourth party, known as “John Doe 4”, could act as an “intervenor” in the case against the IRS subpoena – meaning that he would be allowed to participate in the legal process even though he had not been named in the original summons.
Judge Corley found John Doe 4 made a sufficient showing of an abuse of process to support his intervention as of right. She also declared that the scope of the IRS request, even in its revised format, was unprecedented and commented that the IRS could offer no explanation of how it could legitimately use the millions of records on hundreds of thousands of Coinbase customers.
The judge said that under the reasoning that some customers of Coinbase may not have declared their income from Bitcoin transactions:
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.
A Witch Hunt and a Fishing Expedition
The attempt by the IRS to access customers´ details from Coinbase has been described as a
witch hunt and a
fishing expedition by parties opposed to the subpoena, and one which if successful could result in the IRS profiling Bitcoin users. There is also a risk that the data could be hacked once in the IRS´ hands due to the lax security standards of the agency.
Jeffery Berns – the lawyer representing John Doe 4 – issued a statement in which he said he looked forward to litigating the merits of the subpoena in court and would raise concerns about the
grave privacy and financial risks to which Coinbase customers could be exposed. He might not have long to wait. When ruling that John Doe 4 could act as an intervenor, Judge Corley gave him and Coinbase until July 27 to file their final arguments against the IRS´ petition to execute the subpoena against Coinbase.
The subsequent hearing (at a date still to be announced) will determine whether the IRS´ summons will be enforced or not.