We previously reported that, in July 2019, the U.S. Internal Revenue Service 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.  And we previously reported that James Harper had sued the IRS 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.  In an Order dated March 23, 2021, that lawsuit has now been dismissed.

The Order described the facts as follows.  In 2013, Harper opened an account with Coinbase.  The terms of agreement provided that “Coinbase takes reasonable precautions, as described herein, to protect your personal information from loss, misuse, unauthorized access, disclosure, alteration, and destruction.”  In 2013 and 2014, Harper deposited Bitcoin into his Coinbase account.  Harper primarily received the Bitcoin as income from consulting work.  Harper alleges that he declared the transactions on his 2013 and 2014 tax returns, declared all appropriate income from Bitcoin payments, including capital gains tax, and paid appropriate capital gains on any Bitcoin income for tax years 2015 and 2016.  In 2015, Harper liquidated his holdings in the Coinbase account and by 2016 Harper no longer held any Bitcoin in the Coinbase account.  When Coinbase received a so-called John Doe summons for Harper’s information in 2016, it opposed enforcement, but, ultimately, the court ordered Coinbase to comply with a narrowed version of the summons.  In 2019, the IRS sent Harper the Letter 6173. He then brought suit.

The court dismissed Harper’s money damage claim because there was no basis for arguing that the United States had waived sovereign immunity for such a claim.  As to the claim seeking an injunction that the IRS expunge the records, the court acknowledged that the Administrative Procedure Act generally waives the Federal Government’s immunity from a suit “seeking relief other than money damages and stating a claim that an agency or an officer or employee thereof acted or failed to act in an official capacity or under color of legal authority.”  That waiver, contains an exception, however, “if any other statute that grants consent to suit expressly or impliedly forbids the relief” sought by a plaintiff.

The court held that the Anti-Injunction Act provides such a limitation on judicial review, as it states, in relevant part, that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person[.]”  The court explained that, although Harper’s suit ostensibly challenges the validity of nontax activity – the IRS’s enforcement of a John Doe third-party summons – the effect of Harper’s requested declaratory and injunctive relief would be to prevent the IRS from assessing Harper’s or others’ taxes using the information it has obtained through the John Doe third-party process.  Consequently, his suit, to the extent it seeks injunctive and declaratory relief, was barred by the Anti-Injunction Act.  The court granted the government’s motion to dismiss.


David Zaslowsky has a degree in computer science and, before going to Yale Law School, was a computer programmer. His practice focuses on international litigation and arbitration. He has been involved in cases in trial and appellate courts across the United States and before arbitral institutions around the world. Many of David’s cases, including some patent cases, have related to technology. David has been included in Chambers for his expertise in international arbitration. He is the editor of the firm's blockchain blog.