Key Takeaways

• The U.S. District Court of New Hampshire ruled in favor of the IRS, ruling that John Doe Summons do not violate U.S. constitutional rights.
• The ruling claimed that private citizens are not allowed to sue the IRS for suspected tax violations.

A U.S. Federal court has confirmed that the Internal Revenue Service (IRS) holds the authority to demand user data from Coinbase, a leading cryptocurrency exchange. The verdict dismissed constitutional objections raised by James Harper, an early cryptocurrency trader, according to the official case file. 
Harper’s lawsuit against the IRS, its former commissioner Charles Rettig and ten agents claimed infringement of rights through a “John Doe” summons. A John Doe summons is when the IRS requests — or demands — information about an anonymous taxpayer, usually one that holds funds in an off-shore bank account, according to the IRS.
Referencing the 2021 Supreme Court ruling of CIC Services LLC vs. IRS, the U.S. District Court of New Hampshire ruled that the IRS’s powers, granted by Congress, meant Harper had no extra protections or relief. Harper had previously argued this request violated his Fourth and Fifth Amendment rights, according to the case file. The court document further confirms this, stating: 

“As for Harper’s statutory claim, the statute at issue does not expressly or impliedly provide taxpayers with a private right to sue the IRS for purported statutory violations.”

Despite resistance from Harper, Coinbase reportedly had to release its top users’ data in response to a summons against the exchange. The IRS took action against Harper’s failure to declare his crypto trades in 2013 and 2014.
On September 22, 2022, U.S. District Judge Paul G. Gardephe authorized the IRS to issue a John Doe summons to M.Y. Safra Bank in an effort to identify U.S. taxpayers who might have failed to fully report their cryptocurrency transactions. 

This John Doe summons is specifically targeting customers of the cryptocurrency prime broker, SFOX, who availed themselves of M.Y. Safra Bank’s services for their digital currency dealings. 

“The John Doe summons directs M.Y. Safra to produce records that will enable the IRS to identify U.S. taxpayers who were customers of SFOX and who engaged in cryptocurrency transactions that may not have been properly reported on tax returns.”

Deputy Assistant Attorney General David A. Hubbert stated in response, “taxpayers who transact with cryptocurrency should understand that income and gains from cryptocurrency transactions are taxable. The information sought by the summons approved today will help to ensure that cryptocurrency owners are following the tax laws.”