Motion Seeks to Block IRS from Accessing Bitcoin Users’ Info

Los Angeles – A Coinbase, Inc. customer filed a motion late Tuesday in federal court seeking to block the Internal Revenue Service from accessing personal and transactional information of individuals who used the Coinbase Bitcoin trading and storage platform during the years 2013-2015.   

The motion can be viewed here.

The motion to intervene and to quash a summons issued by the IRS to Coinbase was filed in San Francisco (where Coinbase is headquartered, and where the Justice Department’s petition to permit the IRS to serve a “John Doe” summons was granted) 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 IRS 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 currently scheduled to be heard on January 19, 2017.  In the event that the Court that approved the summons is not prepared to quash it without further information, Berns has alternatively requested that the Court schedule an evidentiary hearing and allow Berns to obtain documents and a deposition from the IRS.

On November 30, a federal judge 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 January 1, 2013 and December 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 wants to ensure “that 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 stated in its petition 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. 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 has said it is committed to customer privacy and will oppose government efforts to obtain customer information. However, it is unclear if or when it will act. The company, the largest U.S. virtual currency exchange, is licensed in 34 states, the District of Columbia and Puerto Rico.  It also operates in 32 countries.

# # #

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. For more information, contact info@law111.com.


MEDIA CONTACT
Elaina Duffy
eduffy@bernsinc.com                 
(818) 600-4444