Biden Administration Advises Supreme Court in Coinbase Lawsuit
The Biden administration is advising the Supreme Court not to engage with a lawsuit brought by a Coinbase user contesting the IRS’s attempts to access his cryptocurrency trading history. In a legal brief filed on May 30, Solicitor General D. John Sauer asserted that the user, James Harper, does not possess any Fourth Amendment protections against the IRS’s inquiry into his financial records held by Coinbase. The government maintained that Harper consciously provided his information to Coinbase and indicated that the IRS acted lawfully by following a judicial process to secure a summons for this data.
Background of the Case
This case is rooted in a 2016 inquiry by the IRS into significant underreporting of taxes related to cryptocurrency transactions. The agency identified a troubling discrepancy between the vast number of individuals trading Bitcoin on Coinbase and the small fraction of taxpayers declaring profits from such investments. To address these concerns, the IRS issued a “John Doe” summons, obligating Coinbase to surrender information about users who engage in substantial trading activities.
Legal Action and Privacy Concerns
In response to the IRS’s actions, Harper, who frequented the Coinbase platform during those years, initiated legal action, arguing that the government’s demands constituted an unconstitutional invasion of his privacy. However, lower court rulings have sided with the IRS, clarifying that the records maintained by Coinbase are regarded as business documents rather than private content of Harper’s. The government’s position, as noted in their brief, hinges on established Supreme Court rulings that assert no reasonable expectation of privacy exists for financial records held by third-party entities like Coinbase.
“Coinbase’s own privacy policy warns users that their information may be disclosed to law enforcement under certain circumstances.”
Current Status of the Case
The Supreme Court has yet to announce its decision on whether to entertain this case. Should the Court decline to take it up, the First Circuit‘s ruling favoring the IRS will remain in effect.
Coinbase Faces Additional Challenges
Complicating matters for Coinbase is a recent security lapse; on May 15, the company reported a data breach where malicious actors bribed customer support employees in India, gaining unauthorized access to sensitive user data. This breach reportedly affected around 1% of Coinbase’s active monthly users, with among the victims being well-known venture capitalist Roelof Botha of Sequoia Capital.
As a result of this incident, Coinbase has faced multiple lawsuits, with at least six complaints filed on May 15 and 16, alleging the platform failed to maintain adequate security protocols and mishandled its aftermath response to the breach.
