(Author’s note: The article has been updated to include a statement from Berns Weiss.)
The Internal Revenue Service (IRS) has responded to a motion filed earlier this month by a Coinbase customer seeking to block the IRS from issuing a “John Doe” summons on Coinbase, a company which facilitates transactions of digital currencies like Bitcoin and Ethereum. The IRS response, which was filed on December 27, 2016, asks the court to dismiss the motion and allow the tax agency to proceed with its “John Doe” summons.
The matter began in November following a formal request on behalf of the IRS to serve a “John Doe” summons on all United States Coinbase customers who transferred convertible virtual currency from 2013 to 2015. A “John Doe” summons is an order that does not specifically identify the person but rather identifies a person or ascertainable group or class through their activities.
That request was granted by Judge Jacqueline Scott Corley who found that “[b]ased upon a review of the Petition and supporting documents, the Court has determined that the “John Doe” summons to Coinbase, Inc. relates to the investigation of an ascertainable group or class of persons, that there is a reasonable basis for believing that such group or class of persons has failed or may have failed to comply with any provision of any internal revenue laws, and that the information sought to be obtained from the examination of the records or testimony (and the identities of the persons with respect to whose liability the summons is issued) are not readily available from other sources.”
In response, a 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 that he was asking the court to allow him to participate in the legal process even though he had not been specifically named in the original summons. Berns argued that the summons was overbroad and would expose private customer data to hackers. Berns was also concerned about the “chilling effect” the summons could have on the entire blockchain technology industry.
In their response, the IRS turned Berns’ argument against him, arguing that since he outed himself as a Coinbase user, he’s no longer subject to the summons. In other words, the point of the summons was “to produce information revealing the identity of certain unknown taxpayers.” As a result of Berns’ motion, the IRS now knows that he is a Coinbase customer. They have, therefore, withdrawn the summons as it applies to him (and only him) and has notified Coinbase that it no longer seeks any records related to Berns. That means, argues that IRS, that the matter as it affects Berns has been resolved and his motion is now moot. With that, the IRS wants to proceed with issuing the “John Doe” summons on Coinbase customers.
Berns, of course, anticipated that the IRS would oppose the motion. In response to the latest filing, Berns Weiss issued the following statement:
The IRS’s willingness to withdraw the subpoena as to Mr. Berns only because it is now aware of his identity makes it clear that the IRS does not have a legitimate purpose in seeking substantial personal and financial information concerning approximately 3 million Americans. The IRS summons that Mr. Berns is seeking to quash does not only request customer names, but also emails, account information, transaction history and a substantial amount of additional data. Now, in an attempt to prevent the Court from examining its motives in pursuing this unprecedented summons, the IRS seeks to avoid the motion filed by Mr. Berns merely because he has identified himself as a customer. The IRS has failed to explain why it is willing to withdraw the summons as to Mr. Berns, even though that means it will not obtain his personal and financial data from Coinbase. As the IRS is well aware, the purpose of the motion is to prevent the IRS from seeking significant private information concerning approximately 3 million Americans, not just Mr. Berns. Thus, as the IRS still cannot demonstrate any basis for seeking this information, we intend to continue to vigorously seek justice for all Coinbase customers.
Coinbase previously stated that while it is their practice “to cooperate with properly targeted law enforcement inquiries,” the company is “extremely concerned with the indiscriminate breadth of the government’s request.” The company has indicated it would oppose IRS efforts, as outlined in the IRS’ initial petition, to access customer data.
