The Internal Revenue Service’s effort to serve Coinbase with a “John Doe” summons has received a fresh challenge, as a motion filed this week in a San Francisco federal court seeks to quash last month’s court ruling that affirmed the tax agency’s power to obtain Coinbase customer personal data and user transaction information. That motion was filed by Berns Weiss LLP Managing Partner and Coinbase user Jeffrey K. Berns, a lawyer whose firm deals with issues involving technology – including digital currencies like Bitcoin.
Berns’ motion is in direct response to last month’s federal court ruling that would allow the IRS to serve Coinbase with what is known as a “John Doe” summons – a summons that is so broad that it designates an identifiable class of persons as its target. In this case, that summon would seek information from Coinbase about all of the company’s users, based on an IRS claim that there is reason to believe that some of those customers may have failed to follow the tax laws. The IRS assertion is based on its belief that the lack of third-party reporting requirements increases the likelihood of Bitcoin users underreporting their activities to evade taxation.
Berns is apparently disputing those claims, noting that,
"There is no legitimate reason to seek these records. Individuals with no taxable events shouldn't be subject to a complete investigation because the IRS doesn’t understand a developing technology."
In his motion, Berns also claims that the release of this customer information could expose Bitcoin users to potential financial loss, as hackers could obtain security information for those user accounts. That could expose the IRS to liability for any losses that might result from a government failure to properly secure account keys. In addition, Berns asserts that such an overly broad summons could have a “chilling effect” on the blockchain industry.
The IRS will attempt to block the motion, and will likely begin by arguing that Berns has no standing to intervene in the matter. He is a Coinbase customer and has reportedly purchased and sold the cryptocurrency himself, which could give him standing to have his motion heard – but only if the court agrees to allow it. Since he was not an original party in the court matter, he has no legal right to be heard now unless the court acknowledges him as an intervenor. The court has scheduled a hearing on the motion for January, 2017.