John Doe' IRS summons for Coinbase records could lead to crypto trader lawsuit

John Doe’ IRS summons for Coinbase records could lead to crypto trader lawsuit, court says

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– The IRS risks losing a blunt weapon in its years-long campaign to collect income taxes from cryptocurrency investors after a ruling from the 1st U.S. Circuit Court of Appeals.
– The 1st Circuits decision Thursday in Harper v. Rettig revives a challenge by crypto trader (and former in-house lawyer for the Bitcoin Foundation) James Harper to the IRSs use of so-called John Doe summonses to obtain trading records from cryptocurrency exchanges.
– The IRS had argued that Harpers suit ran afoul of the Anti-Injunction Act of the Internal Revenue Code because his ultimate aim was to block the government from collecting taxes based on his crypto trades.
– The 1st Circuit focused on Harpers framing of the case, in which he demanded that the IRS expunge trading records that, in Harpers view, were obtained in violation of his Fourth and Fifth Amendment rights.
– Under CIC precedent, the appeals court said, Harper is entitled to sue over IRS tactics, even if those tactics would eventually enable the government to assess and collect taxes.
– Thursdays decision merely allows Harper, a New Hampshire resident and a fellow at the American Enterprise Institute, to go back to the trial court to argue that the IRSs use of a John Doe summons to grab hold of his trading records was unconstitutional.
– The 1st Circuit did not rule on the merits of Harpers constitutional arguments. It simply reversed the 2021 dismissal of his suit on sovereign immunity grounds.
– The U.S. Justice Department, which represented the IRS in the Harper appeal, did not respond to a request for comment. Harpers lead counsel, Richard Samp of the New Civil Liberties Alliance, said the ruling upholds the basic principle that people are entitled to go to court to protect their constitutional privacy rights.
– The IRS has relied heavily on John Doe summonses to wrest information about crypto traders from U.S. platforms such as Coinbase, Inc and Circle Internet Financial.
– Most recently, the IRS won an Aug. 15 ruling that requires SFOX, a cryptocurrency broker, to produce trading records for users who conducted trades totaling at least $20,000, pursuant to a John Doe summons.
– Crypto trades are often anonymous and difficult to trace, DOJ said, so its hard for the government to evaluate whether investors are reporting all taxable income from their transactions. The IRS has been able to persuade several federal district courts that theres good reason to suspect that unknown clients of crypto exchanges are evading income taxes and that the government is entitled to the records that will show such evasion.
– The John Doe summons remains a highly valuable enforcement tool that the U.S. government will use again and again to catch tax cheats, IRS Commissioner Chuck Rettig said in the S

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