A federal judge’s decision could be a blow to cryptocurrencies’ privacy rights

A federal judge has suggested that an individual may not have the right to force the Internal Revenue Service (IRS) to remove financial records obtained from cryptocurrencies.

Judge Joseph DiClerico, of New Hampshire, was granted the December release petition suggested The Internal Revenue Service has no obligation to comply with requests to delete crypto transaction records it has received from Coinbase or other exchanges regarding federal tax information. Partly dismissed for lack of jurisdiction, a civil rights case filed by prosecutor James Harper against IRS Commissioner Charles Rettig, the agency and its officers, was closed in court almost a year later.

Today’s release said Harper was not entitled to damages or restrictions on the IRS’s ability to obtain tax information from stock exchanges, mainly due to the Prohibition Act. A statute that applies only to federal taxes prevents federal courts from exercising jurisdiction in certain cases and prevents the “assessment or collection of any tax.”

“The consequence of Harper’s declarative and preliminary lawsuit would be to prevent the IRS from setting taxes on Harper or others based on information obtained through a third-party trial by John Doe,” Judge DiClerico said. “As a result, his action, in so far as he seeks restraint and declarative relief, is blocked by the Unlawful Acts Act.”

Harper has had a Coinbase account since 2013, first earning bitcoin (BTC) deposits as income from consultancy work. He claims that he declared cryptotransactions with capital gains on his tax returns until 2016, when he liquidated and transferred all shares from the stock exchange, as well as any BTC to Abra and Uphold.

In 2019, there will be an IRS sent 10,000 letters to cryptoinvestors clarification of tax registration requirements for digital assets and the apparent proposal to pay back any unreported taxes. The letter contained a hidden threat that cryptocurrency users would be “subject to future civil and criminal activity” if they did not properly declare and pay share taxes.

Harper allegedly not held any crypto on Coinbase since 2016 and the Exchange has stated in its terms of agreement that it will protect users’ personal data from “loss, misuse, unauthorized access, disclosure, alteration and destruction”. However, because he received a letter from the IRS, Harper concluded that either Abra or Coinbase – or both – had provided their personal information to the agency. In July 2020, he filed a civil rights lawsuit against the IRS, alleging that the tax agency violated his rights to the Fourth and Fifth Amendments.

The court documents referred to the 2017 federal Coinbase case, which stated that the IRS obtaining personal financial information from the stock exchange was classified as “tax compliance, not research” that “serves the legitimate investigative purpose of enforcing tax laws against those who they benefit from trading in virtual currency. “This decision, like today’s decision, may indicate that cryptocurrency users have little chance if an exchange like Coinbase would transfer their personal information in response to a summons or request for information from the IRS.

The judge’s decision comes just three weeks before the U.S. filing deadline of April 15.

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