irs filed enforcement proceeding

On November 30, 2016, a federal court in the Northern District of California authorized the IRS to serve a John Doe summons on Coinbase, Inc., a virtual currency exchanger. The IRS summons sought information on any “United States persons who, at any time during the period January 1, 2013, through December 31, 2015, conducted transactions in a convertible virtual currency” through Coinbase.

At a glance, this could’ve looked like the IRS simply trying to get its slice of tax-evaders’ bitcoins, but upon closer inspection, the IRS summons would’ve set a dangerous precedent. The issue with the John Doe summons is its overly broad scope. It’s called a “John Doe” summons because the IRS presumably doesn’t know the name of the people it’s investigating. Coinbase is one of the largest digital currency and wallet platforms, with an estimated 4.8 million users, and 10.6 million wallets. With that amount of users, and the fact Coinbase has been operating legitimately for years, the government may be targeting them to get the most “bang for their buck” with regard to obtaining significant amounts of information on virtual currency investors.

The IRS is seeking substantial personal information about people who aren’t specifically being investigated for tax compliance issues, which the agency shouldn’t be allowed to do. This level of overreach is an abuse of process.

That’s why on December 13, 2016, Jeffrey K. Berns, an attorney and Coinbase customer, filed a motion to intervene with the Court that authorized the service of the IRS summons, through his law firm, Berns Weiss LLP. Seeing as how the Federal Government has done nothing to show that the millions of Coinbase users have engaged in suspect tax-avoidance conduct, Mr. Berns attempted to protect the interests and personal information of all of Coinbase’s customers who are the subject of the summons. Coinbase subsequently filed its own motion to intervene, that was scheduled to be heard on February 16, 2017. The Court then moved the hearing date for Mr. Berns’ motion to February 16 as well.

Then, on February 2, the Federal Government filed a stipulation requesting the hearing date for the motions be moved to March 23, and the next day, the request was granted. The request wasn’t filed in an attempt to delay proceedings, but was filed because the government was considering filing a petition to enforce the John Doe summons (essentially a separate court proceeding), thus “sparing the Court’s judicial resources and the Parties’ time and expense.”

On March 16, 2017, the Federal Government filed a Petition to Enforce Internal Revenue Service Summons. That means they’re looking to have a judge order Coinbase to comply with the summons. If Coinbase were to refuse to comply afterwards, it would find itself possibly in contempt of court.

Consequently, Berns Weiss withdrew their motion to intervene. However, they plan to continue to fight the summons, as they still believe it was issued in bad faith. Berns Weiss released a statement:

“We are pleased that the Government has finally filed an enforcement proceeding, so that a court can weigh in on the merits of the summons without any procedural distractions.  As the enforcement proceeding moots the pending motion filed on behalf of Mr. Berns, we have withdrawn the motion.  We will, however, continue our efforts to protect the rights of Coinbase customers regarding this patently overbroad summons.  Thus, we plan to file a motion to intervene in the enforcement proceeding on behalf of other Coinbase customers who have contacted us and expressed their interest in fighting the summons.  Mr. Berns will not be seeking to intervene, as the Government has expressly stated that it is no longer seeking any information from Coinbase relating to him.”

If the IRS summons succeeds, it could act as a scare tactic, stifling the growth of virtual currency. That may not be their specific, nefarious intent, but if the IRS can easily get vast amounts of a person’s private information, then that could dissuade potential adopters from utilizing virtual currency, possibly leading to a chilling effect on the development of blockchain-based technologies all together.

ETHNews will continue to provide updates to this on-going story as events break.

Jim Manning lives in Los Angeles and has been writing for websites for over five years, with a particular interest in tech and science. His interest in blockchain technology and cryptocurrency stems from his belief that it is the way of the future. Jim is a full time staff writer for ETHNews.
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