Sixth Circuit Hears Arguments on Crypto Reporting Rule Constitutional Challenge

News | May 21, 2024 By:

On Tuesday, May 7, 2024, the United States Court of Appeals for the Sixth Circuit heard oral arguments on whether a group of cryptocurrency users and companies have standing to challenge an upcoming rule mandating the disclosure of large crypto transactions to the IRS. The court seemed divided on issues of standing and ripeness as it assessed constitutional claims against the new tax reporting requirement.

Cryptocurrency nonprofit Coin Center, mining firm Quiet Industries, and attorney Dan Carman argue they frequently conduct transactions over $10,000 that will be subject to disclosure under an amendment to the tax code passed as part of the 2021 Infrastructure Investment and Jobs Act. This amendment expands an existing cash transaction reporting regime to digital currencies, with an effective date of January 2024.

Representing the crypto plaintiffs, Jeffrey Hetzel claimed their regular large transactions alone should grant them standing to bring challenges under the Fourth, Fifth, and First Amendments. However, the federal government contended without details of how the IRS will implement forthcoming rules, the courts cannot properly weigh privacy and governmental interests or the merits of vagueness claims.

Appeals court judges examined precedents on ripeness and taxpayer standing, questioning whether constitutional issues could be premature without implementing regulations. They also discussed prior rulings allowing associational injuries or delayed enforcement, not barring legal challenges. Ultimately, the panel seemed divided on jurisdictional questions and whether a decision could be reached on dismissal alone at this stage.

With the new tax provision set to take effect soon and its requirements uncertain, the Sixth Circuit grappled with how and when to rule on these legal issues at the center of a burgeoning debate over financial privacy as crypto usage grows in the digital economy. A ruling could impact both challengers’ ability to dispute the reporting mandate and the ongoing development of rules governing this emerging sector.