Friday, January 27, 2023

Coinbase and Users Score Court Victory Against IRS in Privacy Battle

Coinbase and Users Score Court Victory Against IRS in Privacy Battle

A U.S. District Court has sided with a Coinbase customer who wished to protect their identity from a sweeping IRS investigation. The ruling likely prevents further requests for massive amounts of user data from similar providers.

Also read: SegWit2X Taking Bitcoin by Storm, Community Prepares for Upgrade

Coinbase Accounts No Different From a Bank’s

The IRS can no more demand full account details and history from Coinbase than it can request it from every bank branch in the U.S., the court said. Such a request is too broad and constitutes an abuse of process. The ruling added:

“The IRS offers no explanation as to how the IRS can legitimately use most of these millions of records on hundreds of thousands of users.”

The court in California’s Northern District granted one “John Doe” customer a motion to intervene against the IRS’s summons which has demanded Coinbase reveal 500,000 account holders.

IRS building tax revenueThe tax agency filed the subpoena in November 2016, seeking trading records between January 2013 and December 2015. It sought full data records for U.S. customers.

These included trading history, passwords, security settings, confirmed device information, wallet funding sources and much more.

Turning over complete banking records in the U.S. would undoubtedly reveal tax liabilities, the ruling said. However, “it is thus no surprise that the IRS cannot cite a single case that supports such broad discretion to obtain the records of every bank-account holding American.”

Another Win for Bitcoin and Cryptocurrency Users

It’s another win for Coinbase, its customers, and cryptocurrency holders in general. Earlier this month, the IRS narrowed its scope after a group of four customers filed the motion through their own law firm. The court granted only one user’s request, saying the IRS no longer sought the other three users’ records.

Court documents noted that IRS summons are not self-enforcing. The agency is required to seek enforcement from a federal district court and must establish it is acting “in good-faith pursuit of the purposes authorized by Congress”.

The IRS has sought new ways to investigate bitcoin holders’ profits since declaring virtual currencies “property” for tax purposes in 2014.

Today’s ruling will probably not end the agency’s desire to seek tax revenues from cryptocurrency traders. However it does put severe limits on how it conducts its investigations.

What should the IRS do about cryptocurrency traders? Tell us your opinions below.

Images via Pixabay, NPR

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