The Internal Revenue Service (IRS) decided to serve a summons on the largest U.S. virtual currency exchange, Coinbase, Inc., on November 30, 2016. This summons is an attempt to obtain customer data on anyone who “conducted transactions in a convertible virtual currency” between January 1, 2013, and December 31, 2015.
The IRS summons was setting a dangerous precedent on obtaining personal and private information from Coinbase customers. Due to this perceived intrusion, Jeffrey K. Berns, Coinbase customer and managing partner of Berns Weiss LLP, filed a motion to show that the IRS summons is overreaching. However, by December 27, 2016, per the opposition, the IRS withdrew the summons as it pertains to movant Jeffrey K. Berns, and notified Coinbase to exclude any files of record on Jeffrey Berns.
What this translates to is that the IRS is removing Mr. Berns from its list of Coinbase customers’ private information that they would like to examine, which therefore removes him from the summons altogether - simply because he identified himself as a Coinbase customer.
On January 3, 2017, Mr. Berns filed a reply in response to the IRS’s response to his motion to intervene. The reply counters the government’s argument and outlines why the court should reject the government’s attempt to artificially moot the motion.
Yet, based on three claimed instances of taxpayers using Bitcoin to avoid paying undisclosed amounts of income taxes, the IRS is using the John Doe summons process to require Coinbase to identify millions of its U.S. customers and to provide substantial personal and financial information concerning those customers, some of which has absolutely no relation to any tax compliance issue.
The reply further states that the government is acting in bad faith by issuing a summons for information it doesn’t need:
In addition to requiring Coinbase to identify all of its U.S. customers, the IRS summons seeks eight categories of personal and financial information concerning those customers. Yet, even though Coinbase has not produced any of that information for Mr. Berns, the IRS has now stated that it will not seek it. If the IRS does [not] need that information for Movant, then it similarly should not need that information for any other Coinbase customer. Thus, the IRS has acted in bad faith by issuing a summons for information that it does not need.
The reply also states that the court should permit the movant to intervene due to the IRS’s failure to provide the court with important facts concerning the improper IRS summons.
As the IRS withdrew the summons without otherwise obtaining the information that the summons sought from Movant, and without explaining why Movant is in any different position than other Coinbase customers, the Court should reject this transparent attempt by the IRS to avoid judicial review.
Outlined in the argument of the reply:
C. The Government Has Not Established Its Good Faith in Issuing the Summons, as, at a Minimum, There Are Multiple Issues of Fact Concerning Its True Motive.
1. The Government’s Willingness to Withdraw the Summons as to Movant, without Obtaining the Information Sought by the Summons, Is Further Evidence of Bad Faith.
2. The Government Has Ignored Most of the Damning TIGTA Report.
3. The IRS’s Meager Factual Showing Raises Questions as to the Government’s Good Faith.
4. The Breadth of the Summons Readily Demonstrates the Government’s Questionable Motive.
5. The Government’s Willingness to Place Taxpayers’ Virtual Currency at Risk Evidences Its Bad Faith.
6. The IRS’s Limited Resources Raise Questions as to the Government’s Good Faith.
When ETHNews asked Mr. Berns why he originally filed his motion, he stated:
"I believe that my motion raises important questions regarding the IRS’s good faith, such that, at minimum, there should be limited discovery and a limited evidentiary hearing before the Court rules on the issue of whether the IRS is acting in good faith."
Due to this concern, Mr. Berns feels that as a Coinbase customer, he should still be heard at the motion which is currently scheduled for January 19, 2017.
Read the full reply here:
ETHNews will continue to follow this story.