Supreme Court Allows IRS to Access Coinbase Users' Data

The U.S. Supreme Court has declined to review a case involving the Internal Revenue Service's (IRS) efforts to compel companies to hand over users' financial data. The case in question revolves around James Harper, a Coinbase user who attempted to prevent the IRS from accessing his cryptocurrency trading records. Harper argued that the IRS's actions violated his constitutional right to privacy under the Fourth Amendment, as the agency obtained his trading history without a warrant.

The IRS had utilized a legal process known as a “John Doe” summons in 2016 to acquire records of active trading Coinbase users who were not reporting their profits. Harper, being one of these users, sued the IRS. However, lower courts ruled against him, asserting that the information belonged to Coinbase, not Harper individually. The government further supported its stance by citing the United States v. Miller case, which established that individuals do not have privacy rights over financial records held by third parties. Additionally, Coinbase’s privacy policy explicitly states that user data may be shared with law enforcement when required.

The Supreme Court's decision to decline the review means that the IRS can proceed with its investigation into Coinbase users who did not properly report their cryptocurrency income. This ruling reinforces the IRS's authority to access user data and upholds the third-party doctrine, which holds that individuals do not have a reasonable expectation of privacy in records held by third parties. The decision also underscores the legal challenges faced by cryptocurrency users in maintaining their privacy, as the IRS continues to assert its jurisdiction over digital assets.

This ruling impacts privacy expectations for cryptocurrency users, especially those using centralized exchanges. It reinforces the authority of U.S. regulatory agencies to obtain crypto user data, potentially affecting the broader discourse on digital privacy in financial transactions. The decision is perceived as a setback for privacy advocates and has sparked discussions on platforms like Twitter/X.

Reactions from Coinbase, specifically from Chief Legal Officer Paul Grewal, emphasize the importance of data privacy. Grewal stated, "We believe in tax compliance, but this goes far beyond a narrow and tailored request and far beyond crypto. This applies to banks, phone companies, ISPs, email, you name it. [...] you should have the same right to privacy for your inbox or account as you have for a letter in your mailbox."

The legal precedent may influence future enforcement actions, possibly prompting users to evaluate decentralized alternatives for enhanced privacy. The Coincu research team suggests the recent court decision could lead to increased regulatory scrutiny on centralized crypto exchanges. The decision is perceived as a setback for privacy advocates and has sparked discussions on platforms like Twitter/X.