We previously reported that, in July 2019, the IRS announced that it had begun sending the now infamous letters to taxpayers who, supposedly, may have failed to properly report income and pay taxes associated with cryptocurrency transactions. About 10,000 of these Letter 6173 were sent. On tax day (July 15 this year) the IRS was sued in connection with these letters.
The complaint alleges that Plaintiff James Harper opened an account with Coinbase in 2013. Harper claims he disclosed and paid taxes on his digital currency holdings. The complaint describes the process by which the IRS obtained customer information from Coinbase, which was supposedly the basis for the IRS letters. Harper is claiming the IRS violated his rights under the Fourth and Fifth Amendments of the U.S. Constitution by demanding his information from third parties without any specific suspicion of wrongdoing and doing so without notifying him or allowing for him to challenge the seizure of such property.
The complaint begins by saying as follows: “The Framers of the Constitution would hardly recognize the unbridled power that the Internal Revenue Service regularly exerts to seize innocent Americans’ private financial information. . . This case presents the opportunity to correct the course of constitutional law.” Harper seeks money damages and declaratory and injunctive relief, including an order expunging Mr. Harper’s private financial information from IRS’s records. Earlier this month we reported that the Fifth Circuit Court of Appeals held that an individual did not have a privacy interest in the records of his Bitcoin transactions on Coinbase.