(CN) — A customer of Coinbase, a digital currency exchange, argued at the First Circuit Monday that the Internal Revenue Service unreasonably seized his financial records without giving him a chance to object.
James Harper, who opened an account with Coinbase in 2013, says he’s one of thousands of customers whose financial records were seized by the IRS following a petition for a so-called "John Doe" summons on the digital currency exchange platform.
“IRS’s seizure of Harper’s financial records is a search under both approaches — it violated Harper’s property interest in his papers held in bailment by Coinbase, and it invaded his reasonable expectation of privacy by doing so,” Harper's attorneys write in his brief.
In 2016, a federal judge in California approved the summons and granted the IRS financial records from 2013 to 2015. Though the currency exchange platform did not initially comply with the summons, it eventually disclosed to the IRS financial information for more than 10,000 account holders after the court ordered a narrower enforcement of the ruling.
“Congress and the Constitution prohibit this very type of fishing expedition into financial records of …taxpayers without any individualized suspicion of tax evasion,” Sheng Tao Li, an attorney for Harper with the New Civil Liberties Alliance, said Monday.
A federal court in New Hampshire dismissed Harper’s complaint in 2023 after finding he failed to establish a claim that would grant him relief, particularly pointing to a lack of evidence that the IRS did not satisfy requirements for a valid summons of financial records.
But Li said that Harper was never informed by Coinbase that his records would be subject to an IRS summons.
U.S. Circuit Judge William Kayatta, a Barack Obama appointee, asked to clarify if the financial records were technically Harper’s or if they belonged to Coinbase.
“When you say his records, you don’t really mean his records do you? You mean Coinbase’s records of its transactions that he undertook,” Kayatta said.
In response, Li said the contract between Harper and Coinbase specifies that the financial records belong to Harper.
“It says … Coinbase promises to protect your records, your information, indicating those records are his. They belong to him,” Li said.
But Kathleen Lyon, an attorney for the IRS, argued that the records belong to Coinbase — not Harper — and he lacks property interest in this case as a result.
“These are Coinbase’s business records of its transactions with him or his transactions at their site,” Lyon said. “Coinbase created the records, it maintained the records, it possesses the records, it controls the records. I don’t think there’s anything unusual, these are standard records that it keeps.”
U.S. Circuit Judge Kermit Lipez, appointed by Bill Clinton, asked what type of investigation would be permissible if the court decided in Harper’s favor.
“If we were to rule in your favor, what would be left of the IRS as investigative powers?” Lipez said.
In response, Li said there should be an individualized suspicion of wrongdoing rather than a group summons.
Lyon criticized Harper’s push for individualized suspicion, saying that it’s not necessary in this case.
“The contract speaks for itself,” Lyon said. “That Coinbase was able to share this information pursuant to comply with a court order, which is exactly what happened here.”
Judges Kayatta and Lipez were also joined by U.S. Circuit Judge Gustavo Gelpi, a Joe Biden appointee.
Attorneys from neither party responded to a request for comment.
Follow @NikaSchoonover
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