The motion (can be viewed here) to intervene and to quash a summons issued by the IRS to Coinbase was filed in San Francisco, where Coinbase is headquartered. The case is assigned to Judge Jacqueline Scott Corley, who granted the IRS summons. It was filed on behalf of Los Angeles attorney Jeffrey K. Berns, the Managing Partner of Berns Weiss LLP, who estimates that over a million Americans are subject to the summons.
“There is no legitimate reason to seek these records,” said Berns, who used Coinbase to buy and sell Bitcoins. “Individuals with no taxable events shouldn’t be subject to a complete investigation because the IRS doesn’t understand a developing technology.”
The motion is scheduled to be heard on Jan. 19. Barring a ruling, Berns has alternatively requested that the Court schedule an evidentiary hearing that would include an IRS deposition.
On Nov. 30, Judge Corley granted the Justice Department’s petition to allow the IRS to serve its summons to obtain Coinbase customer data for anyone who “conducted transactions in a convertible virtual currency” between Jan. 1, 2013 and Dec. 31, 2015. This data includes the identification of Coinbase’s U.S. customers and substantial private security and financial information for those customers.
The Justice Department explained at the time that it wanted to ensure “whatever form of currency (taxpayers) use – Bitcoin or traditional dollars and cents – that they are fully reporting their income and paying their fair share of taxes.” The Justice Department also stated that, “because transactions in virtual currencies can be difficult to trace and have an inherently pseudo-anonymous aspect, taxpayers may be using them to hide taxable income from the IRS.”
The amount of information sought by the IRS is extensive and includes: transaction history, all correspondence between Coinbase and the user or a third party; contact information, including addresses and user profiles; balances; security settings; user preferences; and payment records.
Berns’ motion states that complying with such an order would expose private customer data to hackers who would potentially be able to steal the funds. Given that the IRS was hacked between 2014 and mid-2015, resulting in the theft of 700,000 Social Security numbers, sharing with the agency the information sought from Coinbase is a risky endeavor, the filing says.
“Information concerning a virtual currency customer’s account is highly sensitive,” the motion states. “If this security information is obtained by a hacker who uses the information to misappropriate virtual currency, there is no way for the true owner of that virtual currency to recover it. If the IRS were to obtain this information, which again, is unrelated to tax compliance, it could expose the government to huge potential liability from Coinbase customers if the keys are not properly safeguarded.”
“This issue is particularly relevant here,” the motion adds, “as the federal government, including the IRS, has recently fallen prey to huge data breaches from both state-sponsored and independent hacker organizations.”
Coinbase is America’s largest virtual currency exchange and is licensed in 34 states, the District of Columbia and Puerto Rico. It also operates in 32 countries. The company has said it is committed to customer privacy and will oppose government efforts to obtain customer information.
About Berns Weiss
Berns Weiss is ideally positioned to protect the rights of the individuals who participate in the developing virtual currency/blockchain eco-system. Its partners have decades of experience protecting the rights of consumers, employees, retirees and investors through class action litigation in federal and state court. The firm’s Virtual Currency and Blockchain Technology practice group is staffed by attorneys that have developed the necessary experience and expertise to guide individuals and businesses working on virtual currency and blockchain applications through the existing legal labyrinth.