First Circuit Affirms IRS’s Right to Issue John Doe Summons to Crypto Exchange Coinbase

On Tuesday, September 24, 2024, the United States Court of Appeals for the First Circuit issued a ruling in the case of Harper v. Werfel, affirming a lower court’s decision regarding the Internal Revenue Service’s (IRS) authority to issue a John Doe summons to a cryptocurrency exchange. The case centered on the appeal brought by James Harper, who challenged the IRS’s investigative actions, claiming they violated his privacy and property rights under the Fourth and Fifth Amendments of the U.S. Constitution.

The dispute arose after the IRS issued a John Doe summons to Coinbase, a digital currency exchange, seeking records related to numerous customers, including Harper. The summons aimed to obtain information regarding transactions involving virtual currency from 2013 to 2015. Harper contended that the IRS’s actions infringed upon his rights by revealing private financial information without adequate protection or notice.

The United States District Court for the District of New Hampshire had previously dismissed Harper’s claims, ruling that he lacked a reasonable expectation of privacy in the information he had voluntarily provided to Coinbase. The district court noted that financial records maintained by third parties do not enjoy the same privacy protections as personal communications or documents. The court concluded that, because Harper’s financial data were essentially business records belonging to Coinbase, he did not possess a constitutionally protected property interest in those records.

In its ruling, the appeals court upheld the district court’s findings, affirming that Harper’s expectations of privacy were not reasonable given the precedent established by the Supreme Court regarding third-party disclosures. The court referenced the “third-party doctrine,” which asserts that individuals forfeit their reasonable expectation of privacy in information shared with third parties, such as banks and, by extension, cryptocurrency exchanges.

The appeals court’s opinion emphasized that the IRS’s summons complied with legal standards and that Harper had received sufficient due process. The court further clarified that the information sought by the IRS pertained to transactions that Harper had conducted through Coinbase, which rendered his claims of privacy violations untenable.

Harper’s legal team had also argued that the IRS did not meet the statutory requirements for issuing a John Doe summons as outlined in the Administrative Procedure Act (APA). However, the appeals court determined that Harper had not established a challenge to final agency action, thereby concluding that his statutory claim was also without merit.

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