IRS Gets Court Approval to Delay Hearing on Access to Coinbase Accounts

The IRS successfully pushed back a hearing focused on its efforts to access United States Coinbase customer accounts. According to court documents filed this week, the IRS asked the court to delay the hearing, previously scheduled for February 16.

In the most recent filing, the IRS stated that it made the request “not for purposes of delay, but rather because the United States is considering filing a petition to enforce or taking other action with respect to the John Doe summons.” Further, the IRS wrote, “if more time is provided a hearing on movants’ motions may be avoided altogether, sparing the Court’s judicial resources and the Parties’ time and expense.”

To date, the move to gain access to Coinbase’s customer accounts has spawned a number of court filings – and could result in even more legal action. Last month, Brian Armstrong, Co-Founder and CEO at Coinbase, noted that the company had been forced into action, writing, “We will likely incur a legal cost of between $100,000 and $1,000,000 in the process of defending our customers from this overly broad subpoena; funds which could be put to better use building innovative products or hiring more employees.”

The subpoena resulted from a formal request filed by the Department of Justice (DOJ) on behalf of the IRS in November 2016. The subpoena sought to serve a “John Doe” summons on all United States Coinbase customers who transferred convertible virtual currency (specifically, Bitcoin, since the company did not trade Ethereum at that time) from 2013 to 2015. A “John Doe” summons is an order that does not identify a specific person but instead identifies a person or ascertainable group or class through their activities.

Judge Jacqueline Scott Corley granted the request. In response, a self-identifying Coinbase customer and managing partner of Berns Weiss, Jeffrey K. Berns, filed a motion to set aside the ruling, which would prevent the summons from being issued. He did so as an “intervenor,” meaning he asked the court to allow him to participate in the legal process even though he was not specifically named in the original summons. Berns argued, among other things, that the summons was overbroad.

In late December 2016, the IRS fired back, arguing that because he identified himself as a Coinbase user, Berns was no longer subject to the summons, making his motion moot. In January of 2017, Berns filed a response claiming the IRS was attempting to “artificially moot the motion.”

In January of 2017, Coinbase also filed a motion to intervene, claiming that “the IRS offered only the slimmest of support for their expansive request.” That same month, Armstrong upped the ante in the public eye, writing that the company had “worked to comply with all IRS guidance in our space, beginning with the March 2014 guidance on virtual currency” and warning that the IRS summons was not the best way to ensure taxpayers were in compliance. Armstrong proposed his solution – in the form of better reporting – last month. The IRS did not issue a public comment in response. However, their silence, along with this most recent court filing, might suggest an alternative strategy is in the works. Coinbase has declined to comment.

In its filing, the IRS advised the court that the opposing parties “do not object and stipulate to this request for additional time.” In other words, the parties agreed to an extension, which should make it easier for the judge to rubber-stamp the request.

The stipulation was confirmed by Berns, who said, “We agreed to the extension, which the Court has now granted, to allow the IRS time to decide if it is going to pursue the documents and information through an enforcement proceeding. We remain hopeful that the IRS will use the additional time to consider the points that we, and others in the virtual currency community, have raised and modified its approach to addressing the concerns it has regarding virtual currency.”
Today, the Court agreed to extend the hearing date. Barring any further action, the matter will be heard before Judge Corley on March 23.