Supreme Court Declines Crypto Privacy Case, Upholds IRS Data Seizure

The Supreme Court has declined to hear a case that could have re-examined the obligation of crypto exchanges to comply with government requests for user data. This decision is a setback for privacy advocates and companies like Coinbase, who had hoped the case would explore whether seizing crypto user data from exchanges might violate customers' Fourth Amendment rights.

The case in question, Harper v. Faulkender, sought to re-examine a decades-old ruling that permits the government to obtain records on customers from third-party service providers like banks, known as the third-party doctrine. This doctrine has been a subject of criticism from conservative scholars who argue that it infringes on user privacy. In 2018, the Supreme Court made an exception to this principle, ruling that a warrant is needed to access certain customer data held by phone carriers.

Many in the crypto industry had hoped for a similar exception for crypto transaction data. Earlier this year, Coinbase filed an amicus brief in support of James Harper, who claimed the IRS violated his Fourth Amendment rights by seizing his crypto transaction data from third-party exchanges. The case would have examined whether blockchain data qualified as a sensitive and novel enough category of information to be treated differently under the third-party doctrine.

However, the Supreme Court declined to take up Harper’s case on Monday, without offering an explanation for its decision. A Coinbase spokesperson did not immediately respond to requests for comment on the decision or the company's future plans regarding the legal issue.

Coinbase has long opposed broad government requests for user data. In 2016, the IRS asked Coinbase for financial data on more than 14,000 of its customers, whom the revenue collector believed may have avoided paying taxes on crypto gains. Coinbase resisted the request as long as it could before risking legal jeopardy.

While the outcome may be seen as a loss for the crypto industry, it is a victory for the Trump administration, which defended the IRS's ability to collect financial information from crypto exchanges. This move is aimed at identifying individuals who potentially failed to pay taxes. Despite its pro-crypto stance, the Trump administration has consistently supported the IRS in such situations during both of the president’s terms in office.