Coinbase Challenges IRS Data Collection Practices at Supreme Court

By: Eliza Bennet

Coinbase, a leading cryptocurrency exchange, is taking a firm stand against what it perceives as the overreach of the Internal Revenue Service (IRS) regarding the collection of cryptocurrency user data. The company has filed an amicus brief with the U.S. Supreme Court. This legal document supports a constitutional challenge to the IRS's broad data collection methods, which Coinbase argues infringes upon Fourth Amendment protections concerning privacy.

The filing from Coinbase criticizes an IRS summons from 2016 that demanded detailed financial and identity records of more than 14,000 customers without specific suspicion. Although the summons was narrowed following legal proceedings, it still resulted in the IRS accessing significant personal details, linking pseudonymous blockchain transactions to real-world identities. Coinbase argues that this unrestricted access potentially enables continuous surveillance of users' crypto transactions.

The core of Coinbase's argument rests on the third-party doctrine, a U.S. legal principle stating that there's no reasonable expectation of privacy for information shared with third parties. The exchange emphasizes that this doctrine's application to digital age contexts, like cryptocurrency transactions, needs a fresh interpretation. They assert that people should have personal privacy rights over their online activities similar to traditional activities, urging the Supreme Court to reinforce limits protecting digital privacy as established in Carpenter v. United States.

Coinbase warns of the sweeping precedent this case could set if left unchecked, permitting government entities to access extensive data without a warrant. They appeal for constitutional clarity from the Supreme Court, arguing that requirements for warrant-based data access should also apply to digital and financial information, promoting a privacy model that sufficiently respects the realities of the digital age.