Trader Appeals Against IRS for Gaining Access to Crypto Records Without Notice

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In Brief
  • James Harper of New Hampshire says the IRS violated his constitutional rights by obtaining records of crypto transactions.

  • After a failed attempt at a local district court, Harper is taking his case to the 1st U.S. Circuit Court of Appeals.

  • The U.S. government said it collected an additional $25 million after IRS letters to Coinbase customers.

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A New Hampshire-based crypto trader prepares his case against the IRS before the 1st Circuit Court of Appeals.

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James Harper claims the IRS overstepped his constitutional rights when the department got a hold of his transaction records. In 2019 the IRS sent letters to Coinbase crypto traders regarding reporting of crypto trades for taxation purposes. After which, the IRS received an additional $25 million in revenue from crypto taxes. 

According to Harper’s legal team, Civil Liberties Alliance, he received a letter from the IRS about his crypto records. “On August 9, 2019, Mr. Harper received a letter from the IRS informing him that the agency had obtained his financial records related to bitcoin ownership without any suspicion of wrongdoing. Mr. Harper was one of more than 10,000 cryptocurrency owners who received such a letter.”

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Together, Harper and lawyers claim the IRS obtained his data without a “valid subpoena, court order, or judicial warrant based on probable cause”. Furthermore, they argue the governmental collection agency forced the exchange of his data, or property, without notice. 

However, before he fights for his case, he must persuade lawmakers he has one. Thus, the crypto trader plans to bring his case before the 1st U.S. Circuit Court of Appeals. 

Initially the New Hampshire resident took his claim to a local district judge, who denied his case in March 2020. U.S. District Judge Joseph DiClerico dismissed Harper’s frame of the claim as an interference with tax collection. This goes against the Anti-Injunction Act (AIA), which protects the collection of taxes.

Harper’s legal team filed his position during a Tuesday briefing at the 1st Circuit. The briefing revealed that any further decision on Harper’s wish for a trial against the IRS hinges on an interpretation of the Supreme Court’s CIC Services LLC v. IRS ruling in May. 

The team says the AIA is not applicable to Harper’s case, which does not skirt tax reporting or collection.

Crypto Tax Crackdown

According to a statement by Harper, he believes the crypto space is borderless and therefore beyond regulatory guidelines of one specific place. “Cryptocurrency is entirely online. It takes the idea of dollar bills and coins and makes it into something that’s entirely on the internet,” he explained in an interview. “[Crypto] has no place. It has no jurisdiction. It’s around the world on the net.”

However, regulators in the U.S. see otherwise. Currently, the U.S. is preparing a series of new crypto taxation requirements. One of which the House Democrats introduced last month, which closes a tax loophole popular with crypto traders. 

Earlier in the summer, the IRS sought out a $32 million budget for the purpose of crypto tax enforcement. In addition, the agency updated its 1040 tax form with modified crypto-related questions and clarified taxation methods. 

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Savannah Fortis is a multimedia journalist covering stories at the intersection culture, international relations, and technology. Through her travels she was introduced to the crypto-community back in 2017 and has been interacting with the space since.

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