Federal Judge Sides with Coinbase Customer Against IRS

Federal Judge Sides with Coinbase Customer Against IRS

A federal judge has ruled in favor of an anonymous customer of the bitcoin exchange Coinbase against the Internal Revenue Service, permitting the unnamed bitcoiner to challenge the agency’s summons and proceed with their case anonymously.

Also read: The IRS Narrows Data Request to Coinbase Users that Transacted For $20,000

Judge Sides With “John Doe 4”

U.S. Magistrate Judge Jacqueline Corley of the Northern District of California has ruled in favor of Coinbase customer known as “John Doe 4” against the Internal Revenue Service (IRS). In the 12-page court order, the judge grants Doe 4’s “motions to intervene as of right and permissively.” These interventions are provided for by Federal Rules of Civil Procedure 24. Fortune summarizes:

The judge agreed to let an anonymous customer, known only as “John Doe 4,” challenge the IRS’s power to enforce a sweeping summons it served on the San Francisco-based Coinbase last year for customer records.

The Case of John Doe 1, 2, 3 and 4

Federal Judge Sides with Coinbase Customer Against IRSThe case began on November 17, 2016 with the IRS’s petition to serve a “John Doe” administrative summons on Coinbase Inc, which was granted on November 30, 2016.

The following month, Coinbase customer Jeffrey K. Berns filed a motion to intervene and quash the summons, prompting the agency to withdraw its request for his information. In early January, Coinbase then moved to intervene and quash the summons, or for a protective order limiting its scope. In May, Coinbase customers, known anonymously as John Doe 1, 2 and 3, also filed motions to intervene and quash the summons.

Federal Judge Sides with Coinbase Customer Against IRSThis month, the IRS filed a notice that it “had narrowed the documents it seeks to obtain via the summons,” the court document describes.

In Tuesday’s court order, “The court grants the stipulation to substitute Doe 4 for Doe 1 and 2 and to permit John Doe 4 to proceed anonymously.” In addition, the IRS no longer seeks records belonging to Doe 1 and 2. While Doe 4’s Coinbase records are covered by the narrowed summons, Doe 3 has not offered any evidence that his records are covered by the narrowed subpoena so his motion to intervene is denied without prejudice.

From the beginning, the agency’s investigation “has drawn fire from Coinbase and others who claim the agency’s demands ensnare too many people and involve too much information,” Fortune described, adding that:

In her ruling, U.S. Magistrate Judge Jacqueline Corley strongly agreed, and declared the scope of the IRS request is unprecedented.

What do you think of the court’s decision? Let us know in the comments section below.


Images courtesy of Shutterstock, Coinbase, IRS


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  • Zyo

    It’s a win! I think everyone in the bitcoin community would agree on that…

    • Unfortunately, this is just a temporary win. If the IRS doesn’t win on appeal, they’ll attack again with different legal methods. Maybe even claiming issues of national security.

      • Tino Collias

        Yeah, but lets be realistic. what they are asking for is going against the whole principle of bitcoin. Which is why they are going against: the whole community will do its best to avoid “them” (general term as the IRS are not the only ones) from getting such control. Someone asked me once “do you pay tax on your crypto-currencies”. I responded “the same amount of tax i pay for casino winnings and when people pay me cash in hand (for Pizza or whatever FYI!)”.

      • Zyo

        I’m not an American so I’m not that concerned but the original query was getting the whole list of all CoinBase customer, balance, transactions… everything. I think right now the only thing they can get is specific account with due process.

  • Ian O’Neill

    Decentralized digital money is fundamentally different from fiat currency in that Bitcoin and the like does not need the withholding tax to give it value, which, according to at least one economist I have heard, is the real reason for income tax, and not the ostensible reason of funding governments. Fiat is worthless without income tax. Not so Bitcoin. With that fundamental difference, the world will soon see massive change (pun intended :-))

    • Dr. Bubó

      “Fiat is worthless without income tax.” Please explain. Fiat’s value comes from trust, and trust is coming from the government. It forces everybody to accept your fiat, it also pays in fiat and always takes fiat. There are a few hundred types of taxes, why is income tax giving it value?? Not to mention some countries who does not have income tax…

  • Christy Logan

    I applaud the judge in this case. The IRS is going to tread very carefully as a slam dunk this is not. They will not want to set a very early precedent that hurts them in the future.

  • Dr. Bubó

    Taxes existed long before fiat currencies. So it is a false reasoning.
    But most importantly: “Fiat currency is created out of nothing” same as bitcoin. You’ll see its true when a hard fork happen…

    • Yes, taxes did exist before fiat, but fiat doesn’t exist without government. Government forces you to use fiat to pay tax. That’s why they have innate utility, but not innate value. If you don’t pay taxes in fiat, you just haven’t paid your taxes That would have negative consequences. So you will acquire that paper currency even though it might not be the best way to store value. Without government enforcement the free market would absolutely choose something else with which to transact value.

      • Dr. Bubó

        I love when someone answers to a thread what he did not read and understand.

    • Gary Fowler

      When you apply for a mortgage and are approved for it, the bank simply prints a check and hands it over to the former homeowner. The bank performed no labor for that money whatsoever. They don’t own it. And yet they loan it out as if it’s theirs. That’s the banking scam, and it ought to be illegal.

      Then you’re on the hook to pay that money back, even though no one truly owns it. That’s just one example of how banks create money out of nothing.

      Bitcoin, on the other hand, takes a lot of time and enormous computing power to create. Even today’s supercomputers would have a difficult time with it on their own without help. So even though it can only exist in RAM and on hard drives, it does definitely have value.

      Its Achilles Heel, of course, is electronics. If a well-timed solar flare takes down our electrical grid indefinitely, bye bye all cryptocurrencies.

      • Dr. Bubó

        This is a popular bullshit answer from a geek who learned finance from youtube.
        I invest in BTC, but for very different reasons than most of the guys like you.

        • Not an argument.

          • Dr. Bubó

            How could I argue with someone who does not understand basic economic and finance definitions???
            Any idea how much thinking, labour, tools, engineering, etc needed to build a machine to print USD bills? So, is it giving intrinistic value to it? There you go.
            Also, the USD has 8k tonnes of gold behind. What BTC has? The ever inreasing value? Well, if this is the case, then BTC is not money, but an asset. You should learn the difference.

          • Gary Fowler

            Oh sure, you mean “finance and economic definitions” as taught by the University of Propaganda.

            Every single civilization that once had “world power” status throughout written history, that’s tried to use fiat money as real money, has gone down in flames from exploding and overwhelming debt. Does $20 trillion in debt sound familiar? Today’s “dollar” is nothing but a note of debt, an IOU, worth less than nothing.

            Examples in the 20th Century alone include the Ottoman Empire, the Weimar Republic, Yugoslavia, the Soviet Union, Zimbabwe, and many more. The euro and yen are rapidly headed that way as well.

            Sorry, but Crook I mean President Richard Nixon closed the gold window on the dollar in 1971, ending all its ties to gold. Try taking an ounce of gold to your bank for cash and see what they’ll give you for it. They’ll look at you funny and tell you to try a gold dealer. There isn’t shit behind the dollar today, except for the public’s misplaced confidence in it.

            My parents bought a 3BR home in Tucson in 1970 for $17,000, and that’s not a typo.

            Machines used to print money don’t give shit to a dollar. A “dollar” is constitutionally defined as 371.25 grains of fine silver. It’s the precious metal that makes the dollar, not paper.

            A piece of paper isn’t a dollar, no matter what it says on it, what fancy designs are on it, what anti-counterfeiting is used, or whose signature is on it.

            Some guy’s basement counterfeit dollar is worth more; at least it isn’t part of the national debt.

            Just what the hell do you think “This note shall be legal tender for all debts public and private” means? It’s legalese for “You shall use this bullshit paper note as money, or else you go to prison (or worse).”

          • Dr. Bubó

            “Richard Nixon closed the gold window on the dollar in 1971, ending all its ties to gold” NOT TRUE!
            Officially the US never ended the gold standard, they just don’t convert the dollar to gold. Why? Because they dont have enough gold! This was the case in ’71 and since then, that’s why we are taught that the gold standard is over.
            Now, it is a “soft” gold standard. The point is, behind the scene the gold is as important as it was. Without the 8k tonnes of gold the FED and every other banks in the US would be insolvent. Same with the IMF, Japan, Switzerland etc. Only small unimportant countries fall for the propaganda and sold their gold. Thats the reason why China and Russia is buying gold. And the US helps them, because it needs China to buy US bonds, and that’s the deal. The gold market is manipulated to postpone the USD collapse.
            Most importantly, EVERY money needs to be inflatory, otherwise people won’t spend it. And the whole reason of money is to make transactions happen (what wouldnt happan otherwise). So, if BTC is deflatory (as gold should be) people won’t spend it, it would become an asset, not money. You cannot call something “money” what people are not willing to give away. When the money becomes the best investment (like BTC now), the number of transactions would fall, we would have recession and deflation and every person and company with debt would bankrupt. Total collapse. The bitcoin community seems to not understand this simple fact.
            If you want BTC to be digital gold, thats fine, we dont have to do anything. But if we want BTC to be money, then the 21m cap should be removed. Dead simple.
            Your comment is typical. Its the propaganda told since ’71, common knowledge. But you miss the big picture. We need SOME inflation. Even the gold standard would work fine if the gold supply grows faster than the global economy. Eventually every fiat fails, but not because it has no intrinistic value but because politicians too short-sighted and think ahead only 4 years and spend too much.
            The problems you writing about are real, but switching official money from USD or EUR etc. to BTC would NOT solve the problem but would make it much worse. You really need to understand the deflation in a debt-fuelled economy.

          • Value is subjective. You have a Marxist approach to value, which is provably flawed.

            USD is not backed by gold, regardless of how much is possessed by the state or banks. That is to say federal notes are not pegged to gold.

            I can and have made purchases with bitcoin. Seems like money to me.

          • Dr. Bubó

            Your personal opinion based on misinformation and lack of knowledge is not an argument. At least not on the global financial markets…

          • Yeah, good luck with that. I think we will have to agree to disagree, and let the readers judge for themselves. Thanks for the engagement.

          • Dr. Bubó

            It is not luck, it is the attitude of this community. You guys simply don’t understand deflation and keep saying that the madly deflatory bitcoin will make a good world money. Even worse, that you also not willing to look up the issue and learn a bit about the subject. Hard proven facts are not subject of democracy nor personal preference.