Coinbase former customer sues IRS for records seizure

A former user of Coinbase (NASDAQ: COIN) is suing the Internal Revenue Service (IRS) in an attempt to block access to private financial records.

In July 2019, digital currency researcher Jim Harper said he received a letter from the IRS stating the federal agency “had reason to believe” he had not paid full tax on his digital currency dealings, a claim he says is false.

Questioning the IRS’ source, Harper suggested his details could have been acquired by the tax agency through a controversial court order giving them access to Coinbase records.

In 2018, the IRS was able to successfully seize over 13,000 customer records from Coinbase, which resulted in many users receiving follow-on enquiries from the tax agency.

Harper said the court action would require the destruction of records held by the IRS, as well as allowing other recipients of the infamous IRS digital currency letter to seek similar relief.

“If they acquired it via the Coinbase summons—and we don’t know that for sure—it was a defective process that denied me the opportunity to contest the seizure of my data,”

He said, “I’ll be seeking destruction of the records in the IRS’s control. A win would allow all recipients of the letter to seek the same.”

The approach taken by the IRS in pursuing digital currency users for unpaid taxes is becoming increasingly common globally, with tax agencies worldwide keen to clamp down on avoidance.

However, seizing or compelling information from digital currency exchanges has led to a proliferation of reports of tax authorities making false allegations without full information.

In the Harper case, the court will decide whether IRS access to Coinbase records was lawful. If not, there could be repercussions for thousands of Coinbase customers on the receiving end of an IRS letter, and in the same position with their tax affairs.