On June 29, the Court heard oral arguments on the motion to intervene made by two Coinbase customers, John Does 1 and 2. On July 6, the Government narrowed the scope of the IRS summons to only Coinbase users with at least $20,000 in any one type of transaction (buying, selling, sending, or receiving) in any single year between 2013 and 2015. Due to the Government’s decision, the records of John Does 1 and 2 were no longer covered by the IRS summons. Thus, the Court permitted another customer, John Doe 4, whose records fall within the scope of the narrowed summons, to substitute into the proceeding for John Does 1 and 2.
In today’s ruling, the Court found that John Doe 4 made a sufficient showing of an abuse of process to support intervention as of right. Notably, the Court said:
“The IRS offers no explanation as to how the IRS can legitimately use most of these millions of records on hundreds of thousands of users; instead, it claims that as long as it has submitted a declaration from an IRS agent that the IRS ‘is conducting an investigation to determine the identity and correct federal income tax liabilities of United States persons who conducted transactions in a virtual currency during 2013-2015’ the Court must find that the Summons does not involve an abuse of process. It contends that ‘there seems to be a substantial gap between the number of people transacting in virtual currency (for which tax consequences might attach) and those that are reporting such transactions.’ (Dkt. No. 28 at 13.) But that argument proves too much. Under that reasoning the IRS could request bank records for every United States customer from every bank branch in the United States because it is well known that tax liabilities in general are under reported and such records might turn up tax liabilities.”
Ultimately, the Court found that John Doe 4 satisfied the requirements for intervention as of right, and permissive intervention. The Court also permitted John Doe 4 to proceed anonymously.
John Does 1, 2, and 4 are represented by Berns Weiss LLP, which has been challenging the IRS summons on Coinbase since it was issued last November. Less than two weeks ago, Lee A. Weiss, a partner at Berns Weiss, told ETHNews that his office was committed to fighting for Coinbase users’ rights and opposing the Government’s attempt to enforce the summons on Coinbase.
“We still firmly believe that this is an improper use of the IRS John Doe summons procedure. Therefore, our clients will continue to challenge the Government’s petition to enforce the IRS summons.”
According to another Court order, John Doe’s response (as well as Coinbase’s response) to the Government’s Petition to Enforce the IRS summons is due on July 27.
Jeffrey Berns is the Managing Partner of Berns Weiss LLP and is also CEO of Berns Inc, parent company to ETHNews.