Case Information
*1 UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE James Harper
v.
Civil No. 1:20-cv-00771-JL
Opinion No.
capacity as Commissioner, Internal
Revenue Service, et al.
MEMORANDUM ORDER
This case concerns the constitutionality of the Internal Revenue Service’s utilization of its “John Doe” summons procedure to obtain a taxpayer’s account information from Coinbase, a virtual currency exchange. Following the issuance and enforcement of such a summons, the IRS collected account information and records from Coinbase. Some of the records it collected belonged to Plaintiff James Harper, who bought and sold bitcoin through Coinbase. Through this lawsuit, Harper seeks an injunction requiring the IRS to expunge, destroy, or return his Coinbase records and an order declaring the statute that authorized the issuance of the John Doe summons, 26 U.S.C. § 7609(f), unconstitutional.
Harper alleges that the IRS’s actions constituted a seizure and search that violated the Fourth Amendment of the United States Constitution as well as his procedural due process rights under the Fifth Amendment. He further claims that the IRS violated § 7609(f) in obtaining his records. The IRS moves to dismiss for failure to state a claim upon which relief can be granted.
This court has jurisdiction over Harper’s claims under 28 U.S.C. § 1331 because the claims present federal questions. After considering the parties’ submissions and hearing oral argument, the court grants the motion. Harper does not have protectable Fourth or Fifth Amendment interests in the records produced by Coinbase in response to the John Doe summons. Even assuming that he did, the IRS’s actions satisfied the Fourth Amendment’s reasonableness requirement and provided him constitutionally adequate process under the Due Process Clause. As for Harper’s statutory claim, the statute at issue does not expressly or impliedly provide taxpayers with a private right to sue the IRS for purported statutory violations. Also, a different court has already determined that the IRS satisfied the statutory requirements for a John Doe summons, and that determination is not subject to a later collateral attack. Finally, even if the court’s decision was subject to collateral attack, Harper’s complaint fails to state a claim that the IRS did not satisfy the elements of § 7609(f).
Applicable legal standard
To defeat a Rule 12(b)(6) motion, Harper must plead “factual content that allows
the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Martinez v. Petrenko,
Background
Factual background . The court draws the relevant factual background from Harper’s First Amended Complaint, [1] documents attached to that complaint, and other matters of public record. In 2013, Harper opened an account with “Coinbase,” an entity that “facilitates transactions in virtual currencies such as bitcoin.” [2] Coinbase provided terms of agreement alongside its account, stating, in relevant part, that “Coinbase takes reasonable precautions, as described herein, to protect your personal information from loss, misusе, unauthorized access, disclosure, alteration, and destruction.” [3] Coinbase
warned its users, however, that it “may share [their] personal information with . . . [l]aw enforcement, government officials, or other third parties when: [w]e are compelled to do so by a subpoena, court order or similar legal procedure[.]” [4]
*4 In 2013 and 2014, Harper deposited bitcoin into his Coinbase account. Harper primarily received the bitcoin as income from consulting work. Harper alleges that he declared the transactions on his 2013 and 2014 tax returns and that he declared all “appropriate income from bitcoin payments,” including capital gains tax. [5] Harper further alleges that he paid “appropriate capital gains on any bitcoin income for tax years 2015 and 2016.” [6] Harper began liquidating his holdings in the Coinbase account in 2015. By 2016, Harper no longer held any bitcoin in the Coinbase account. [7]
In 2016, the IRS petitioned ex parte under 26 U.S.C. §§ 7609(f) and 7609(h)(2) in
the United States District Court for the Northern District of California for leave to serve a
“John Doe” summons on Coinbase.
[8]
“A ‘John Doe’ summons is, in essence, a direction
to a third party to surrender information concerning taxpayers whose identity is currently
unknown to the IRS.” Tiffany Fine Arts, Inc. v. United States,
Based on a review of the petition and supporting documents, the court granted the petition, determining that the John Doe summons to Coinbase:
relat[ed] to the investigation of an ascertainable group or class of persons, that there [wa]s a reasonable basis for believing that such group or class of persons has failed or may have failed to comply with any provision of any internal revenue laws, and that the information sought to be obtained from the examination of the records or testimony (and the identities of the persons with respect to whose liability the summons is issuеd) [wer]e not readily available from other sources. [9]
The IRS served the summons on Coinbase, which did not comply.
The IRS then filed a separate summons-enforcement petition against Coinbase in
March 2017.
[10]
Coinbase opposed the petition, and at least one John Doe successfully
intervened as well.
[11]
Other third parties filed amicus briefs opposing the summons,
*6
including Harper, who signed an amicus brief filed by the Competitive Enterprise
Institute.
[12]
During the enforcement proceeding, the IRS agreed to narrow the scope of its
summons.
[13]
Ultimately, after oral argument, the court granted the petition in part and
denied it in part and ordered Coinbase to comply with a narrowed version of the
summons. See United States v. Coinbase, Inc., No. 3:17-cv-01431,
Coinbasе produced account holder documents and information to the IRS in response to the narrowed summons, including information about Harper’s Coinbase account from 2013 to 2015. Following its receipt of Harper’s Coinbase account information, the IRS sent Harper a letter in 2019 entitled “Reporting Virtual Currency Transactions.” [15] As relevant here, the IRS told Harper the following: *7 We have information that you have or had one or more accounts containing virtual currency but may not have properly reported your transactions involving virtual currency, which include cryptocurrency and non-crypto virtual currencies. [16]
The IRS stated that if Harper had failed to properly report his “virtual currency transactions” then he “may be subject to future civil and criminal enforcement activity.” [17]
Procedural history . Harper filed suit in August 2020 against the IRS, its then Commissioner in his official capacity, and ten “John Doe” IRS agents. Harper’s complaint contains three counts: (1) violation of the Fourth Amendment; (2) violation of the Fifth Amendment; and (3) declaratory judgment/violation of 26 U.S.C. § 7609(f). As relief for the alleged Constitutional violations in Counts 1 and 2, Harper seeks money damages from the defendants, as well as injunctive and declaratory relief. Specificаlly, Harper requests an order: (i) declaring § 7602, et seq., unconstitutional as applied to him under the Fourth and Fifth Amendments; (ii) requiring the IRS to expunge Harper’s financial records; and (iii) prohibiting the IRS and John Does 1 through 10 from seizing financial records from “virtual currency exchanges” under § 7602, et seq., in the future. In Count 3, Harper requests a declaratory judgment that the IRS is violating § 7609(f) interrogatory answers that it sent the 2019 letter to Harper based only on its review of documents and information produced by Coinbase in response to the narrowed John Doe summons, and not based on receipt of documents or information from Abra, Coinbase, or Uphold in response to an informal IRS demand. See IRS Interrogatory Answers (doc. no. 30-11) at 5. The court does not rely on these interrogatory answers for purposes of resolving the pending motion to dismiss. It simply notes – and the parties agree – that Harper’s claims now only relate to the judicially issued and enforced Coinbase summons. Doc. no 3 at ¶ 68; see also doc. 3-6 at 1.
Doc. no. 3 at ¶ 69; see also doc. 3-6 at 1. *8 and, like Counts 1 and 2, requiring the IRS to expunge [18] his financial records and prohibiting the IRS and John Does 1 through 10 from seizing similar financial records through § 7609(f) in the future.
The IRS initially moved to dismiss the complaint for lack of subject-matter
jurisdiction and failure to state a claim upon which relief could be granted. The court
(DiClerico, J.) granted the motion and dismissed (for varying reasons) all of Harper’s
claims for damages and declaratory and injunctive relief.
[19]
Harper appealed the dismissal
of his injunctive and declaratory relief claims, but not his damages claim. A First Circuit
Court of Appeals panel reversed, finding that the Anti-Injunction Act “does not bar
[Harper’s] suit and the district court’s judgment of dismissal under Federal Rule of Civil
Procedure 12(b)(1) must be vacated.” Harper v. Rettig,
remand, the case was assigned to the undersigned judge after Judge DiClerico passed away in April 2022. The parties agree that only Harper’s claims for declaratory and injunctive relief remain.
Analysis
Harper first contends that the IRS’s acquisition of his Coinbase records through a John Doe summons was an unreasonable seizure and search of his private papers (in which he held both property and privacy interests) that violated the Fourth Amendment. *9 He next contends that because he possesses both property and liberty interests in his Coinbase records, the Due Process Clause of the Fifth Amendment afforded him notice and an opportunity to be heard before the IRS attempted to deprive him of those interests. Finally, Harper argues that § 7609(f) is unconstitutional as applied to him, and even if not unconstitutional, the IRS violated the statute by failing to satisfy several prerequisites for issuance of a John Doe summons. The court addresses the IRS’s challenges to each claim in turn, beginning with the Fourth Amendment claim.
A. Fourth Amendment claim
The Fourth Amendment protects “[t]he right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures” and provides that “no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.” U.S. Const. Amend. IV. The IRS raises two primary challenges to Harper’s Fourth Amendment claim. It first argues that Harper had no protectable Fourth Amendment interest in the Coinbase records. It also argues that even if the IRS’s acquisition of the Coinbase records constituted a Fourth Amendment search or seizure, its actions were reasonable and probable cause is not required to issue a John Doe summons. The court agrees with the IRS on both pоints.
1. Protectable Fourth Amendment interest
Courts have utilized a property-based or “common-law trespass” approach as well
as a privacy-based approach to determining whether Fourth Amendment interests are
*10
implicated. Carpenter v. United States,
Privacy interest
. The Supreme Court of the United States has long held that “a
person has no legitimate expectation of privacy in information he voluntarily turns over
to third parties.” Smith v. Maryland,
information conveyed to a telephone company, but courts have applied the third-party
doctrine in other contexts, most notably to bank records and customer information held
by financial institutions. See United States v. Miller,
The Court reasoned that, like GPS information, but unlike “telephone numbers and
bank records,” the “time-stamped [CSLI] data provides an intimate window into a
person’s life, revealing not only his particular movements, but also his ‘familial, political,
professional, religious, and sexual associations.’” Id. (quoting Jones,
Harper asks this court to find, as in Carpenter, that account information held by a
virtual currency exchange provides an intimate window into a person’s life and is thus
protected under the Fourth Amendment. The court declines to do so. Harper’s
“Coinbase records are more akin to the bank records in Miller than the CSLI in
Carpenter.” United States v. Gratkowski,
Coinbase is a financial institution, a virtual currency exchange, that provides Bitcoin users with a method for transferring Bitcoin. The main difference between Coinbase and traditional banks, which were at issue in Miller, is that Coinbase deals with virtual currency while traditional banks deal with physical currency. But both are subject to the Bank Secrecy Act as regulated financial institutions. Both keep records of customer identities and currency transactions.
Id. (citations omitted). The Carpenter Court was concerned about the surveillance aspect
of CSLI; the data provided “a detailed chronicle of a person’s physical presence compiled
every day, every moment, over several years,” which “implicate[d] privacy concerns far
beyond those considered in Smith and Miller.”
The CSLI in Carpenter also lacked the voluntary disclosure quality of bank
records and other information normally subjеct to the third-party doctrine. “[T]ransacting
[b]itcoin through Coinbase or other virtual currency exchange institutions requires an
‘affirmative act on the part of the user.’” Gratkowski,
Harper’s “contract” with Coinbase does not compel a different result. The
Supreme Court “has held repeatedly that the Fourth Amendment does not prohibit” the
government from obtaining information revealed to third parties, “even if the information
is revealed on the assumption that it will be used only for a limited purpose and the
confidence placed in the third party will not be betrayed.” Miller,
Moreover, no court has adopted Harper’s broad reading of Carpenter in the
context of virtual currency exchange records. Several courts have rejected it. See, e.g.,
Gratkowski,
Of course, the court cannot grant Harper’s request that it overrule Miller. See Obj.
at 23. Miller and the third-party doctrine remain good law even after Carpenter, and this
court is bound to apply them. Carpenter,
Property interest
. Citing Boyd v. United States,
also argues that he has a property interest in the Coinbase records because those records
constitute his personal or “private papers.” The court is not persuaded. In Miller, the
Court distinguished Boyd and found that a bank customer could “assert neither ownership
nor possession” of his account records.
While the initial summons to Coinbase sought copies of third-party agreements, passports and drivers’ licenses, bitcoin (or other virtual currency) wallet addresses, public keys for all accounts/wallets/vaults, and correspondence between Coinbase and users and third parties with access to the accounts, the court-enforced summons was far narrower. *16 The court ultimately ordered Coinbase to produce, for a limited group of account holders, the following information to the IRS: (1) the taxpayer ID number; (2) name; (3) birth date; (4) address; (5) “records of account activity including transaction logs or other records identifying the date, amount, and type of transaction (purchase/sale/exchange), the post transaction balance, and the names of counterparties to the transaction”; and (6) all periodic statements of account or invoices or equivalent documents. Coinbase, 2017 WL 5890052, at *8-9.
From a property rights perspective, this information is “no different from the many
other kinds of business records the Government has a lawful right to obtain by
compulsory process,” because the account holder does “not own, possess, control, or use
the records.” Carpenter,
2. Reasonableness
The IRS also argues that, even if the Coinbase summons implicated Harper’s
Fourth Amendment rights, its seizure and search of the records were reasonable and thus
did not violate the Fourth Amendment. “The fundamental inquiry under the Fourth
Amendment is whether a particular search or search procedure is ‘reasonable’ in the
circumstances.” McCabe v. Life-Line Ambulance Serv., Inc.,
(1987)). A warrantless search is normally “reasonable only if it falls within a specific
exception to the warrant requirement.” Carpenter,
The IRS does not claim that its third-party summons procedure is an exception to the warrant requirement per se. Instead, it argues that so long as it complies with the requirements of United States v. Powell in obtaining and enforcing the summons, the Fourth Amendment reasonableness standard is mеt. In other words, the Powell person has given his “papers and effects” to a third party. Here, however, as the court has already found, Harper’s Coinbase account information is not considered his papers and effects for purposes of the Fourth Amendment. The bailment theory might work if the IRS attempted to seize Harper’s bitcoin, which he entrusted to Coinbase to secure, without a warrant. But that did not occur.
requirements, while not an “exception” to the warrant requirement, exempt the IRS from
making any probable cause showing that would otherwise be required to support a
warrant. See United States v. Powell,
Powell resolved a circuit split “on the standards the [IRS] must meet to obtain
judicial enforcement of its” summonses under § 7602 and § 7604.
Judge Corley has already found that the IRS satisfied both § 7609(f) and the
Powell requirements in obtaining and enforcing the John Doe Coinbase summons. See
doc. no. 30-5; Coinbase,
B. Fifth Amendment Procedural Due Process claim
“Procedural due process guarantees that ‘before a significant deprivation of
liberty or property takes place at the state’s hands, the affected individual must be
forewarned and afforded an opportunity to be heard ‘at a meaningful time and in a
meaningful manner.’” Perrier-Bilbo v. United States,
The IRS argues that Harper has failed to identify a protected liberty or property interest. It further argues that even if he had a protected liberty or property interest in the Coinbase records, the IRS used constitutionally adequate process to deprive him of those interests. The court agrees with the IRS.
1. Identifiable property or liberty interest
For the reasons discussed above, Harper does not have a property interest in the
records and information produced by Coinbase in response to the IRS’s summons. See
supra, § III, A., 1; see also Miller,
Harper nevertheless argues that he has a “liberty interest in maintaining the
privacy of his financial records” that is protectable under the Fifth Amendment. This
argument falters for several reasons. First, it mischaracterizes the interest at stake. The
financial records belong to Coinbase, not Harper. Second, it finds no support in
precedеnt. No court has recognized a protectable liberty interest in maintaining the
privacy of financial records held and created by a third-party financial institution. Third,
“privacy” in the context of liberty interests relates to the “most personal and deep-rooted
*22
expectations of privacy,” and not necessarily account records maintained by regulated
financial institutions. Payne v. Taslimi,
“The constitutional right to privacy does extend to . . . ‘the individual interest in
avoiding disclosure of personal matters.’” Walls v. City of Petersburg,
2. Deprivation of interest without constitutionally adequate process
Even if Harper held a liberty or property interest in the Coinbase records, the
summons procedure utilized here adequately proteсted those interests. “No rigid
taxonomy exists for evaluating the adequacy of state procedures in a given case; rather,
‘due process is flexible and calls for such procedural protections as the particular
*23
situation demands.’” Gonzalez-Droz v. Gonzalez-Colon,
Harper contends that he received neither notice nor an opportunity to be heard at a
meaningful time and manner before being deprived of his alleged interests in the
Coinbase records. The court disagrees. “[D]ue process does not invariably require a
hearing before the state can interfere with a protected property interest.” Gonzalez-Droz,
Further, meaningful opportunities to contest the summons arise after its issuance.
For example, once the summons issued here, Coinbase refused to comply and made the
IRS satisfy additional procedural hurdles in an enforcement proceeding. See Bisceglia,
Lastly, the IRS’s interests in swift receipt and enforcement of investigative summonses, as well as its interest in rooting out citizens who do not pay their obligated share of taxes, outweigh any benefit that might accrue from additional procedural protections.
Harper acknowledges that the IRS John Doe summons procedure is necessarily ex
parte and it would have been impossible to provide him notice prior to issuing the
original summons. He argues instead that the IRS should have followed a different
procedure. Specifically, Harper asserts that the IRS should have first sought a John Doe
summons to Coinbase for account holder names only. Presuming it obtained his name
from this summons, Harper then expected the IRS to send summonses to the individual
*25
account holders with notice, providing them an opportunity to contest the summons.
Harper believes that the IRS could have utilized this optional procedure to get the
information it wanted but simultaneously preserve his due process rights. Whether to
utilize Harper’s proposed procedure is discretionary for the IRS, and “a benefit is not a
protected entitlement if government officials may grant or deny it in their discretion.”
Town of Castle Rock v. Gonzales,
C. Statutory claim
In Count 3, Harper seeks a declaratory judgment that the IRS violated 26 U.S.C. § 7609(f) in obtaining his account information from Coinbase and an injunction requiring the IRS to expunge his records. The IRS lodges several grounds for dismissal. First, it argues that Harper lacks standing to bring a claim for violation of § 7609(f) because the statute contains no private right to sue. Second, it contends that even if Harper had standing, a different court has already determined that the IRS satisfied the statute in obtaining the Coinbase records and that determination is not subject to collateral attack. Third, it asserts that even if the prior orders were subject to a later collateral challenge, the IRS fully met its obligations under the statute. Harper contests each argument and further asserts that he has standing to challenge the IRS’s actions under the Administrative Procedure Act. The court agrees with the IRS.
*26 1. Standing
Harper concedes that the text of § 7609(f) confers no private right on a taxpayer to sue the IRS for damages and injunctive relief arising out of an alleged violation of the statute. He instead contends that because he is within the “zone of interests” that the statute is intended to protect, he has an implicit right to sue under § 7609(f). He also argues that the APA allows him to challenge the IRS’s alleged compliance with § 7609(f). Neither argument persuades the court.
Implied right of action
. Harper cites Vander Luitgaren v. Sun Life Assur. Co. of
Canada,
particular plaintiff’s claim.”) (emphasis added). The question in those cases was whether
on remand, regardless of whether the IRS raised them initially. To be clear, the Court of
Appeals’ mandate to this court is to “consider, in the first instance, whether [Harper] has stated a
claim on which relief can be granted.” Harper,
Harper nonetheless seeks to expand the concept of statutory standing to confer a private right of action on anyone the statute is arguably designed to protect, even when (as here) the statute is devoid of a legislatively conferred cause of action. Neither Lexmark nor Vander Luitgaren compel this result. Harpеr has not cited, and the court’s research has not uncovered, any decision where a court allowed a taxpayer to bring a separate, later claim (in a different court) for violation of § 7609(f) after the reviewing court had already allowed, issued, and enforced the summons.
Harper also does not cite cases or develop arguments under the more conventional
implied right of action rubric. Under that doctrine, courts have “held that ‘[t]he question
whether Congress . . . intended to create a private right of action [is] definitively
answered in the negative’ where [as here] a ‘statute by its terms grants no private rights to
any identifiable class.’” Gonzaga Univ. v. Doe,
Harper is correct that courts have recognized that “Congress passed section
7609(f) specifically to protect the civil rights, including the privacy rights, of taxpayers
subjected to the IRS’s aggressive use of third-party summonses.” Gertner, 65 F.3d at
971. But the mechanism for protecting those taxpayer rights is not a right to sue or a
separate remedy, but the “requirement of judicial preapproval.” Id. at 972. Not only is
judicial preapproval an “important component of the statutory scheme,” it “permits the
district court to act as a surrogate for the unnamed taxpayer and to ‘exert[] a restraining
influence on the IRS.’” Id. (quoting Tiffany,
APA . Harper also argues that he can challenge the IRS’s compliance with the statute under the APA because the IRS’s act of pursuing the summons is a “final agency action.” 5 U.S.C. § 704 (“Agency action made reviewable by statute and final agency action for which there is no other adequate remedy in a court are subject to judicial *29 review” under the APA). The IRS responds that Harper is not challenging agency action, but rather the district court’s decisions in the Coinbase summons matters. It further argues that the Coinbase summons proceedings were an “adequate remedy in court,” precluding review under the APA. 5 U.S.C. § 704. And it contends that review is prohibited under the APA because § 7609(f) “impliedly forbids the relief which is sought.” 5 U.S.C. § 702(2). The IRS’s arguments have superficial appeal, but because the court assumes, without deciding, that Harper has standing to challenge the IRS’s compliance with § 7609(f) in this lawsuit (and, as discussed below, finds for the IRS on the merits), it need not decide the APA question.
2. Collateral challenge to prior orders
Assuming arguendo that Harper has an implied right of action under § 7609(f) or a right to assert a claim for alleged violations of § 7609(f) under the APA, he has failed to show that prior district court orders issuing and enforcing John Doe summonses are subject to subsequent collateral challenges in a different district court. Harper asserts that Judge Corley’s rulings in the Coinbase summons cases have no preclusive effect on this suit. He further asserts that he was not required to challenge those rulings in the same court that issued and enforced the summons.
The IRS counters that it is not raising a collateral estoppel argument. It simply
contends, correctly, that unappealed § 7609(f) determinations are not subject to later
challenges as a matter of procedure. See, e.g., United States v. Allee,
Judgment entered in the Coinbase summons matters, and neither Harper nor any
party, intervenor, or amici appealed the court’s orders, moved for relief from judgment,
or moved to re-open those matters. As a result, Harper has no additional procedural
*31
avenue to argue that Judge Corley’s findings under § 7609(f) and Powell were incorrect.
Allee,
3. Merits
Even if Harper had a private right of action to assert a violation of § 7609(f) and this court could review – notwithstanding Judge Corley’s prior orders – whether the IRS satisfied the requirements of § 7609(f), the court finds that Harper has failed to state a claim that the IRS violated the statute. In an action seeking the issuance of a John Doe summons, the IRS must establish that:
(1) the summons relates to the investigation of a particular person or ascertainable group or class of persons,
(2) there is a reasonable basis for believing that such person or group or class of persons may fail or may have failed to comply with any provision of any internal revenue law, and
(3) the information sought to be obtained from the examination of the records or testimony (and the identity of the person or persons with respect to whose liability the summons is issued) is not readily available from other sources.
§ 7609(f). Harper contends that the IRS failed to establish that its summons to Coinbase related to the investigation of an “ascertainable group or class or persons” and that the information sought was “not readily available from other sources[.]” §§ 7609(f)(1), (f)(3). He also argues that because he has “accurately reported his virtual currency *32 transactions for all applicable tax years,” [31] , the IRS failed to establish that it had a reasonable basis for believing the group of persons “may fail or may have failed to comply with any provision of any internal revenue law.” § 7609(f)(2). None of Harper’s arguments has merit. [32]
Ascertainable group of persons
. Harper asserts that the Coinbase summons fails
to identify an “ascertainable group or class of persons” because “ascertainable group”
means a small, similarly situated group, not a group of the size covered by the subject
summons. He cites no case law supporting that reading of the statute. Instead, he relies
only on the statute’s legislative history, which purportedly cites smaller groups of persons
such as “corporate shareholders” as examples of an ascertainable group. The court agrees
with the IRS that the plain and ordinary meaning of “ascertainable” is well understood
from the text of the statute as referring to something that can be determined with
certainty.
[33]
Nothing in the language of the statute imposes a size limitation on the class
or group, and reference to the legislative history is therefore unnecessary. See Stauffer v.
IRS,
In addition, courts have approved summonses to broad groups of John Does and
found such groups “ascertainable.” See, e.g., In re Tax Liabilities of Does, Case No. 20-
mc-32,
Reasonable basis . Harper argues that the IRS could not satisfy § 7609(f)(2) when it sought issuance of the Coinbase summons because he allegedly “reported [all of] his virtual currency transactions for all applicable tax years.” [35] This ignores the fact that the IRS sought a summons for records of a group of unidentified people that it believed had violated or would violate the internal revenue laws. The statute does not require the IRS *34 to show that each person in the ascertainable group violated the law. If it suspects that members of the group “may” have violated the law and the information sought may reasonably suggest that the correct tax liability may not have been reported, § 7609(f)(2) is satisfied. The IRS’s petition and supporting documentation established that taxpayers utilizing Coinbase may have failed to report – or under-reported – income and other information required under the internal revenue laws. In fact, the IRS alleged that not only did it have suspicion that the John Doe class included taxpayers who were not complying with the law, but it knew that members of the class violated the tax laws in the past, all of which was sufficient to satisfy § 7609(f)(2).
Availability from other sources . Harper lastly argues that the summons fails to satisfy the third statutory requirement regarding the unavailability of the records from other sources. Under his reading of the statute, John Doe summonses must be limited to taxpayer identities only, so the IRS should have limited the initial John Doe summons to Coinbase to customer identities. No court has adopted Harper’s reading of § 7609(f)(3). In making this argument, he ignores the text of the statute and again purportedly relies on its legislative history and purpose. The statutory language – “(3) the information sought to be obtained from the examination of the records or testimony (and the identity of the person or persons with respect to whose liability the summons is issued) is not readily available from other sources” – flatly contradicts Harper’s interpretation as requiring summonses only for identifying taxpayers. By its plain terms, the statute provides that *35 both the information sought and the subject’s identity must not be readily available from other sources. The court cannot ignore this text and adopt Harper’s policy-based construction.
Moreover, the statute does not require the IRS to adopt Harper’s two-step approach of first seeking a John Doe summons for taxpayer identifying information only and then later summonsing the taxpayer directly, with notice, for their account information. That such an entirely optional procedure may be available to the IRS does not suggest that the information obtained from the Coinbase summons was available from other sources. Harper has failed to state a claim that the IRS did not satisfy the requirements of § 7609(f)(3).
The IRS made the required showing under § 7609(f) and followed the required
procedures. As the First Circuit Court of Appeals has recognized, “under section 7609(f)
form is substance.” Gertner,
Conclusion
As the Supreme Court recently reaffirmed, “[t]o pursue unpaid taxes and the
people who owe them, ‘Congress has granted the Service broad latitude to issue
summonses.’” Polselli v. Internal Revenue Serv., No. 21-1599,
SO ORDERED .
Joseph N. Laplante United States District Judge Dated: May 26, 2023
cc: Richard Samp, Esq.
Jared Joseph Bedrick, Esq.
Edward J. Murphy, Esq.
Thomas P. Cole, Esq.
Ryand D. Galisewski, Esq.
Notes
[1] Doc. no. 3.
[2] Id. at ¶ 18.
[3] Id. at ¶ 25.
[4] Id. at ¶ 28.
[5] Id. ¶¶ 30-33; see also id. ¶¶ 75, 99, 123, 140 (alleging that he “has accurately reported his virtual currency transactions for all applicable tax years”).
[6] Id. at ¶ 37.
[7] Id. at ¶ 36. From 2016 to the date of his complaint (August 2020), Harper and his wife also “liquidated bitcoin through” the virtual currency exchanges “Abra” and “Uphold.” Id. at ¶ 56.
[8] 2016 Petition (doc. on. 30-3). The court can consider the Coinbase summons petition and other
court documents relating to the enforcement of that summons when deciding this motion,
without converting it to motion for summary judgment. See Fritz v. Brown, No. 06-cv-469-PB,
[9] Order Granting Petition (doc. no. 30-5) at 1-2.
[10] 2017 Petition (doc. no. 30-6). The same judge who oversaw the 2016 summons petition – Judge Jacqueline Scott Corley – presided over the 2017 summons-enforcement action.
[11] Motions to Intervene (doc. no. 30-8); see also doc. no. 3 at ¶¶ 41, 48.
[12] Competitive Enterprise Institute Amicus Brief (doc. no. 30-10); see also doc. no. 3 at ¶ 51.
[13] Notice of Narrowed Summons (doc. no. 30-7); see also doc. no. 3 at ¶ 41.
[14] See also doc. no. 3 at ¶ 54. No party appealed the summons issuance or summons enforcement orders. Id. at ¶ 55.
[15] Doc. no. 3 at ¶ 67; see also doc. 3-6 at 1. Harper also alleges, upon information and belief, that IRS agents “issued an informal demand” to Abra and Coinbase for his financial records with those entities. He believes that Abra or Coinbase complied with that informal demand, further prompting the 2019 letter. See id. at ¶ 76. The IRS has subsequently stated in sworn
[18] At its core, Harper’s request for declaratory or injunctive relief seeks to compel the IRS to return or destroy the records it received from Coinbase relating to his account.
[19] See Order (doc. no. 17) (DiClerico, J.).
[20] Harper does not explain what intimate life details his Coinbase records reveal. Even if the
records incidentally showed his occasional location information (and Harper does not argue that
they did), Carpenter would not require this court to recognize a privacy interest in the records.
See Carpenter,
[21] The nature of bitcoin and other virtual currencies allows individuals to buy, sell, or transfer the bitcoin directly to others without third party intervention. Harper chose to use a government- regulated, third party to execute these types of transactions.
[22] Doc. no. 3 at ¶ 28.
[23] Donaldson, which addressed a taxpayer’s right to intervene in a third-party IRS summons proceeding, led to Congress’ passage of § 7609(b).
[24] Harper quotes from Justice Gorsuch’s solo dissent in Carpenter to bolster his criticism of
Miller and the third-party doctrine. Doc. no. 32 at 19. He also relies on that dissent to advance a
“bailment” theory of property rights to support his argument that he holds a property interest in
the Coinbase records. Under this theory, if one entrusts his papers and effects to a third party,
that third party “owes a legal duty to keep the item safe.” Carpenter,
[25] Doc. no. 32 at 14.
[26] Courts, including the First Circuit Court of Appeals, “look to the Supreme Court’s
interpretation of ‘liberty’ in the Fourteenth Amendment for guidance” in determining whether a
protectable liberty interest exists for procedural due process purposes. Perrier-Bilbo, 954 F.3d at
434. Liberty in the Fourteenth Amendment context refers to two types of interests: “one is the
individual interest in avoiding disclosure of personal matters, and another is the interest in
independence in making certain kinds of important decisions.” Whalen,
[27] Harper’s counsel argued in passing at oral argument that because the IRS did not initially move to dismiss his statutory claim under Rule 12(b)(6), that portion of its current motiоn is foreclosed by Rule 12(g). Harper’s counsel later seemed to concede that the First Circuit Court of Appeals’ opinion and remand order allows this court to consider any Rule 12(b)(6) arguments
[28] Harper’s complaint does not cite or otherwise rely on the APA.
[29] The one decision cited by Harper in support of his argument that ex parte § 7609(f)
determinations are subject to later collateral challenges – United States v. Brigham Young
University – is readily distinguishable because there, the Tenth Circuit Court of Appeals merely
held that a summons recipient could challenge a § 7609(f) determination in a later enforcement
proceeding relating to the same summons.
[30] Doc. no. 32 at 8-9.
[31] Doc. no. 3 at ¶ 140
[32] See doc. no. 30-5. The IRS supported its ex parte petition for leave to serve a John Doe summons on Coinbase with a detailed memorandum of law and a declaration from an IRS Senior Revenue Agent. Id.
[33] See IRS Reply (doc. no. 34) (quoting Merriam Webster Dictionary, “Ascertain”, available at https://www.merriam-webster.com/dictionary/ascertainable).
[34] See also doc. 30-4 at 11-13 (citing cases).
[35] Doc. no. 3 at ¶ 140.
[36] See doc. no. 30-4 at 13-14.
[37] Doc. no. 30.