Coinbase customer gets another crack at the IRS

News | August 26, 2022 By:

On Thursday, August 18, 2022, the United States Court of Appeals for the First Circuit unanimously decided that taxpayer James Harper could continue to sue the Internal Revenue Service (IRS) for unlawfully obtaining private financial information concerning his usage of virtual currency through third-party exchanges.

In August 2019, the IRS informed Harper that it had information on his virtual currency accounts and activities and cautioned him that failing to appropriately disclose such transactions could result in civil or criminal enforcement action.

In July 2020, Harper sued the IRS, Commissioner Charles P. Rettig in his official capacity, and ten unidentified IRS agents for injunctive relief and monetary damages, claiming that the third-party summons process violated his constitutional and statutory rights. Harper thought the IRS had obtained his personal financial records from digital currency exchange Coinbase via a third-party summons.

In its March 2021 decision, the U.S. District Court for the District of New Hampshire concluded that it lacked subject matter jurisdiction over Harper’s suit under the Anti-Injunction Act of the Internal Revenue Code, 26 U.S.C. ยง 7421,1, and dismissed the complaint.

In its decision, the Court of Appeals stated that in accordance with CIC precedent, Harper is entitled to bring legal action against the IRS, even though doing so would eventually allow the government to assess and collect taxes.

The decision states:

“The IRS urges that we should nevertheless affirm the dismissal of the case under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. Although the IRS made this argument below and both sides fully briefed the issue, the district court declined to evaluate the government’s Rule 12(b)(6) arguments after concluding that dismissal was required under Rule 12(b)(1). We, therefore, vacate the judgment of dismissal for lack of subject matter jurisdiction and remand to the district court to consider, in the first instance, whether the appellant has stated a claim on which relief can be granted.”

A copy of the original filing can be found here.