Supreme Court Upholds IRS Access to Cryptocurrency User Data

The Supreme Court has declined to hear a case challenging the Internal Revenue Service’s (IRS) ability to access cryptocurrency user data, thereby upholding a lower court ruling that permits the agency to collect records from Coinbase. This decision reaffirms a long-standing legal principle: if individuals share their information with a third party, the government can often access it without a warrant.

The case involved James Harper, a Coinbase user who argued that the IRS violated his constitutional rights by seizing his financial information without proper cause. Harper, who filed the lawsuit in 2020, claimed that the IRS unlawfully acquired records from his Coinbase account, including transaction details, security settings, and personal correspondence. Coinbase initially resisted the IRS summons but was later ordered by a federal district court to comply, albeit with a narrowed scope of the data request.

The IRS probe, launched in 2016, initially sought data on over 500,000 Coinbase users. After legal challenges, Coinbase eventually turned over a smaller set of data, including Harper’s. In 2019, Harper received a letter from the IRS suggesting he may not have properly reported his crypto transactions. Harper, who insists he paid all taxes owed, sued the agency soon after.

Harper’s legal argument centered on the Fourth Amendment, which protects against unreasonable searches and seizures. He asked the court to revisit a 1976 ruling that stated people do not have privacy rights over records held by third parties, such as banks. Harper argued that the lower court’s ruling would strip millions of Americans of meaningful privacy protections over their most sensitive financial data simply because they use modern financial service providers.

Coinbase joined Harper in urging the high court to reconsider the precedent. The exchange said it resisted the IRS summons as long as it could without facing contempt charges. Coinbase’s chief legal officer, Paul Grewal, criticized the scope of the agency’s request, stating that it went far beyond a narrow and tailored request and applied to various institutions, including banks, phone companies, and internet service providers.

The Biden administration, along with the Trump and Obama administrations before it, supported the IRS’s position. The government argued that Harper had no reasonable expectation of privacy in Coinbase’s records. The 1976 Supreme Court decision, United States v. Miller, established the third-party doctrine, allowing law enforcement to access records held by institutions like banks without a warrant. The Court reaffirmed this idea in 1979 with regard to telephone records but carved out a narrow exception in 2018, ruling that location data from cell phone towers is protected under the Fourth Amendment.

Some current justices, including Neil Gorsuch, have questioned the third-party doctrine in past opinions. In 2018, Gorsuch argued that simply sharing data with a third party shouldn’t strip someone of their constitutional rights. However, in Harper’s case, the Court gave no explanation for declining the appeal. The denial leaves the existing legal framework unchanged, and privacy advocates say it could affect more than just crypto users. Harper’s case drew support from several groups, including Elon Musk’s platform X, which submitted a brief backing Harper’s challenge, arguing that the IRS subpoena was overly broad and lacked suspicion.

With the Supreme Court stepping aside, the IRS is now free to continue enforcing its summonses across the crypto industry. Crypto investors in the U.S. are facing increased pressure from the IRS, which has ramped up enforcement efforts over the past two months. Tax experts say the agency is targeting discrepancies in digital asset filings.