The United States Supreme Court has dismissed a Coinbase user’s appeal to block the IRS from accessing his transaction records. James Harper, a Coinbase customer, argued that the IRS violated his Fourth Amendment rights by obtaining his financial data without a warrant.
The court’s rejection, announced today without explanation, upholds the IRS’s authority to collect user data from third-party platforms, such as Coinbase.
Harper’s Legal Claims Squashed!
James Harper’s legal battle began in 2020 when he sued the IRS, claiming the agency unlawfully seized his crypto transaction records through a “John Doe” summons. This broad request compelled Coinbase to hand over data on over 14,000 users, including Harper, as part of an IRS probe into unreported cryptocurrency gains. Harper argued this violated his constitutional right to privacy under the Fourth Amendment, which protects against unreasonable searches.
Lower courts, including the U.S. Court of Appeals for the First Circuit, ruled against him, citing the “third-party doctrine” from the 1976 United States v. Miller case. This precedent states that individuals have no privacy rights over financial records held by third parties, such as banks or crypto exchanges.
Despite amicus briefs from Coinbase, X, and privacy groups urging the Supreme Court to reconsider this doctrine in the digital age, the Court declined to hear Harper’s appeal.
What the Ruling Means for Coinbase and IRS
The recent ruling poses a challenge for Coinbase in its quest to enhance user privacy protections. The exchange is concerned that unrestricted IRS data requests could lead to extensive surveillance of users’ financial activities and undermine trust.
On the other hand, the ruling enhances the IRS’s ability to enforce tax compliance in the rapidly evolving cryptocurrency sector, where underreporting of capital gains is a common occurrence. While the agency can continue using broad summons to gather data, this may have a chilling effect on innovation and privacy in the digital economy.
Meanwhile, although the ruling came hard on Harper, the SEC’s new Crypto Task Force aims for regulatory clarity. For example, earlier in June, SEC Chair Paul Atkins announced policies to reduce regulatory barriers for decentralized finance (DeFi) platforms, marking a significant departure from the previous administration’s enforcement-heavy approach.
