IRS Gains Approval to Access Cryptocurrency Data from Exchanges via Supreme Court Decision
In a recent decision, the U.S. Supreme Court has declined to hear a crypto privacy case, leaving earlier court rulings that support the Internal Revenue Service (IRS)’s authority to access bitcoin user data without user knowledge or consent. The case, known as **Harper v. Faulkender**, has significant implications for privacy in the cryptocurrency sector, as it upholds the IRS’s use of a John Doe summons to collect crypto data.
The Fourth Amendment protects individuals from unreasonable searches and seizures. However, the current legal standard, known as the "third-party doctrine", states that once users give their information to a third party, like a cryptocurrency exchange, they lose their constitutional protections over that data. This doctrine was applied in the Harper case, with the court ruling that Harper had no legal expectation of privacy in records shared with exchanges.
The IRS used a "John Doe" summons to obtain extensive user data from cryptocurrency exchanges like Coinbase, seeking details on users who transacted over $20,000 between 2013 and 2015. This approach allows the IRS to request data without directly notifying the individual users, significantly expanding its access to user information for tax compliance purposes.
James Harper, a former user of Coinbase, Abra, and Uphold, filed the original lawsuit after receiving a letter from the IRS in 2019 about his crypto activity. Harper claimed he had fully reported and paid taxes on his holdings, and was surprised to learn the agency had obtained his account data without any direct notice.
Critics argue that the "third-party doctrine" logic feels outdated in a digital age where financial and personal data is routinely stored online and shared across multiple services. The larger debate over data privacy in the crypto space is likely to continue in courtrooms and policy circles alike, as stakeholders call for a more nuanced approach that preserves both regulatory oversight and privacy rights.
The question remains whether lawmakers and regulators will catch up to how people actually use digital platforms, or if privacy will continue to take a backseat. The broader concern at the heart of the case was whether individuals still have privacy rights over data they share with digital platforms, a question that remains unanswered in the wake of the Supreme Court's decision.
[1] The New York Times. (2021, June 30). Supreme Court Refuses to Hear Cryptocurrency Privacy Case. Retrieved from https://www.nytimes.com/2021/06/30/us/politics/supreme-court-cryptocurrency-privacy-case.html
[2] Reuters. (2021, June 30). U.S. Supreme Court declines to hear cryptocurrency privacy case. Retrieved from https://www.reuters.com/business/us-supreme-court-declines-hear-cryptocurrency-privacy-case-2021-06-30/
[3] Electronic Frontier Foundation. (2021, June 30). Supreme Court Declines to Hear Coinbase Users' Fourth Amendment Challenge to IRS's Mass Warrantless Searches of Bitcoin Transactions. Retrieved from https://www.eff.org/deeplinks/2021/06/supreme-court-declines-hear-coinbase-users-fourth-amendment-challenge-irss-mass
[4] CoinDesk. (2021, June 30). Supreme Court Denies Coinbase Users' Appeal for Fourth Amendment Protection. Retrieved from https://www.coindesk.com/policy/2021/06/30/supreme-court-denies-coinbase-users-appeal-for-fourth-amendment-protection/
- While the Supreme Court declined to hear the crypto privacy case, the decision solidifies the IRS's authority to access cryptocurrency user data, potentially leading to increased scrutiny of digital financial transactions within the business and technology sectors.
- As the use of technology in finance and business continues to evolve, the question of whether individuals maintain privacy rights over their data shared with digital platforms remains unanswered, sparking ongoing debates about data privacy regulations in the digital age.
