James Harper, a Bitcoin investor out of New Hampshire has filed a lawsuit against the IRS. The New Civil Liberties Alliance is representing James in an effort to challenge recent actions taken by the IRS. According to James, the IRS obtained private financial data on his Bitcoin transactions for no justified reason.

The Lawsuit Against The IRS

An investor out of New Hampshire is challenging the IRS, after he stated that the entity obtained his private financial data on Bitcoin with no wrongdoing. According to the announcement, The New Civil Liberties Alliance is representing the individual investor, James Harper.

James has been a long term holder of Bitcoin, making his first purchase in 2013. According to the announcement, James had paid all the necessary taxes on his Bitcoin over the years. In addition, the investor was practicing strong book keeping and reporting all the necessary trades. This is why James was astonished when he learned that the IRS was looking into his transactions for no apparent reason.

IRS Letter 

Since purchasing Bitcoin in 2013, James continued to carry out transactions on Coinbase, Abra, and Uphold. While working with some of the largest exchanges, Harper was under the impression that these companies were protecting his private information. On August 9th of 2019, Harper stated that he received a letter from the IRS regarding his financial holdings. Even though Harper stressed the fact that he has followed all the rules pertaining to Bitcoin reporting, the mail in the letter informed him that the IRS had collected his financial records on Bitcoin. With Harper receiving the letter in August 2019, it seems like the IRS was moving fast since they made the announcement in July that they planned to contact 10,000 virtual currency owners via mail.

Fourth & Fifth Amendments 

The NCLA and Harper argue that the IRS violated the 4th and 5th Amendments. The Fourth Amendment states that “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures.” Harper believes the IRS violated the 4th Amendment since the financial entity was requesting financial information with no proof of wrongdoing. In regards to the 5th Amendment, NCLA and Harper argue that the “Due Process Clause” was violated when the IRS collected financial information from his crypto exchanges with no prior notices.

Regarding the 4th and 5th Amendments, Caleb Kruckenberg, Litigation Counsel at NCLA stated that:

“The Internal Revenue Service is notorious for treating law-abiding taxpayers as guilty until proven innocent. IRS is hiding behind cryptic, unexplained reasons for using its formidable machinery against Mr. Harper. Thankfully, the Constitution is not so obscure. The Fourth and Fifth Amendments require the IRS to demonstrate that the agency followed lawful procedures before attempting to audit Mr. Harper’s cryptocurrency transactions.”

IRS Moving Quick 

Ever since late last year, the IRS has been taking a proactive approach in the digital asset space. In a December 2019 report, it was outlined that the IRS altered its forms to allow for crypto reporting. This move came towards the end of the year, after the IRS sent out 10,000 mailing, and investigated crypto ATM’s and Kiosks. In regards to the mailings, it was believed that the exchanges were supplying the IRS with investor information. This would further explain how the IRS had personal information on Harper.

The lawsuit will be interesting to follow as it pertains to personal data. In order to comply with regulators, crypto exchanges have to follow certain due diligence as well. It will be interesting to see how this relates to their connection with outside entities like the IRS. In recent developments, we have already found out that Coinbase has been selling analytics licenses to the IRS, DEA, and US Secret Service. It is believed that these tools look at publicly available data, but it is still relatively unknown how the IRS had personal information on thousands of crypto investors.

Image Source: Pixabay 

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