IRS Responds To Coinbase Customer Fighting IRS Summons [Updated]
Update - December 28, 2016:
Berns Weiss, the law firm representing Jeffrey Berns, released the following statement today:
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.
Update – December 27, 2016:
Since the IRS summons on Coinbase Inc. resulted in setting a dangerous precedent for Bitcoin holders, Jeffrey K. Berns, Coinbase customer and managing partner of Berns Weiss LLP, stepped in and filed a motion to show that the IRS summons is overreaching. On December 27, 2017, the IRS filed the United States’ Opposition to Movant Jeffrey K. Berns’ Motion to Intervene, to Quash Summons, or for Protective Order, or for an Order Scheduling an Evidentiary Hearing and Permitting Limited Discovery.
Per the opposition, the IRS has withdrawn the summons as it pertains to movant Jeffrey K. Berns, and notified Coinbase to exclude any files of record on Jeffrey Berns.
On December 13, 2017, Jeffrey K. Berns filed this motion, seeking to intervene, to quash the John Doe summons to Coinbase, for a protective order, or for an order scheduling an evidentiary hearing and permitting discovery. By the underlying motion, movant, Jeffrey K. Berns, has identified himself as covered by the summons to Coinbase. As a result of learning his identity, the IRS has withdrawn the summons as to him and has notified Coinbase that it no longer seeks any records related to him.
Consequently, Mr. Berns’ motion is moot and should be dismissed in its entirety.
In this case, after obtaining authorization to do so, the IRS served a summons on Coinbase asking it to produce information revealing the identity of certain unknown taxpayers. Since Mr. Berns has come forward and identified himself as one such taxpayer, the government has given notice to Coinbase that is has withdrawn its summons insofar as it relates to him. Mr. Berns’ motion is therefore moot.
At the time of this published update, Jeffrey Berns has not responded with any further course of action.
United States’ Opposition to Motion to Intervene:
Original – December 14, 2016
On November 30, 2016, the Internal Revenue Service was allowed to serve a summons on Coinbase, Inc., a virtual currency exchange, in an attempt to obtain customer data. The IRS is trying to gain access to a substantial amount of information on anyone who “conducted transactions in a convertible virtual currency” between January 1, 2013, and December 31, 2015. The IRS is not only asking for transactional data, but is also seeking a wealth of private information, and that’s a real problem.
Jeffrey K. Berns, the managing partner of Berns Weiss LLP, has filed a motion to intervene and quash the summons issued by the IRS. The motion is scheduled to be heard on January 19, 2017, and seeks to show that the IRS summons is overreaching.
The amount of information the IRS is requesting is incredibly broad and would possibly include Coinbase customers’ contact information, addresses, balances, security settings, user preferences, and more. Since the IRS was previously hacked in 2014-2015, resulting in 700,000 social security numbers being compromised, the requested private data of Coinbase’s users could be put at risk.
Read the full press release below:
Motion Seeks to Block IRS from Accessing Bitcoin Users’ Info
For Immediate Release: Dec. 14, 2016
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.
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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 firstname.lastname@example.org.
Jeffrey Berns is the Managing Partner of Berns Weiss LLP and is also CEO of Berns Inc, parent company to ETHNews.