• Coinbase wants the Supreme Court to stop the IRS from using old rules to get crypto user data.

  • The case could change how the law protects digital privacy in the United States.

  • The IRS used a broad legal tool to demand data from thousands of Coinbase users without naming them.

Crypto exchange Coinbase has filed a legal brief urging the U.S. Supreme Court to restrict the IRS’s use of the third-party doctrine. This legal rule allows government agencies to collect user data from companies without individual suspicion or warrants.

https://twitter.com/iampaulgrewal/status/1917600381250724274 IRS Access to Coinbase Data Sparks Legal Battle

The recent action by Coinbase acts as support for the lawsuit filed by a customer against the IRS order to provide customer account information. A John Doe summons enabled the agency to collect financial data from 500,000 Coinbase users. The requested information included customer names, addresses, complete transaction records, and all account operations.

The IRS used this tool in 2016 to identify possible tax evaders using cryptocurrencies. A court later reduced the scope to 14,355 users. James Harper joined other users who took legal action against the IRS after the agency violated his constitutional rights. The lower courts declined to pursue the case because they applied the third-party doctrine.

Third-Party Doctrine Faces Fresh Scrutiny

Coinbase’s brief argues that the third-party doctrine no longer fits the digital era. The rule stems from a time before the internet or blockchain existed. It assumes users give up privacy when sharing data with third parties like banks or telecom firms.

Coinbase claims this approach fails in the context of blockchain. Once a user’s identity links to a crypto wallet, all transactions become visible. This allows real-time surveillance without warrants. Coinbase calls this effect a form of constant digital monitoring.

Blockchain Raises New Privacy Concerns

The company warns that blockchain data, while public, can become personally identifiable. The IRS can trace users' past and future transactions. Coinbase believes this violates the Fourth Amendment, which protects against unreasonable searches and seizures.

Coinbase highlights a 2018 Supreme Court ruling in Carpenter v. United States. In that case, the Court ruled that police must get a warrant to access cell location data. Coinbase says similar protections should apply to financial data stored on digital platforms.

Implications for Financial Privacy Nationwide

Harper v. O’Donnell case may lead the Court to redefine digital privacy standards. Several states, advocacy groups, and tech firms support Coinbase’s stance. 

If the Court agrees to hear the case, oral arguments may begin in the next term. The decision could reshape how agencies handle data collection across all digital services. A ruling may also require firms to revise their data retention policies.