Why the US Supreme Court will let IRS access Coinbase user data

• The US Supreme Court rejected an appeal from an account holder who said the IRS violated their Fourth Amendment rights. 
• The Coinbase account holder raised concerns over an IRS summons that forced the exchange to share information of crypto customers. 
• A 1976 court ruling says that the Fourth Amendment doesn’t cover records held by third parties, stripping customers of their privacy. 

The United States Supreme Court recently rejected a Coinbase user’s petition to question an Internal Revenue Service summons forcing the exchange to turn in transaction information for crypto customers. 

The account holder argues that the IRS violated their Fourth Amendment right, however, justices rejected the appeal without further explanation. A 1976 court ruling shows that information shared with third parties, like banks, is not covered by the Fourth Amendment privacy rights. 

Coinbase shared over 14,000 crypto customers’ info with IRS

The United States’ IRS summoned Coinbase Global Inc. to share crypto transaction info for over 14,000 Americans. One of the users argued that the move was a violation of their constitutional rights, however, the court has rejected the petition and IRS enjoys the right to access whatever information is required for crypto transactions through third parties like exchanges. 

While justices did not offer an explanation while turning down the appeal on June 30, the probe began in the year 2016, under Barack Obama’s presidency. The IRS reached out to Coinbase and collected information for over 500,000 customers from Coinbase within a three-year timeframe. 

The exchange attempted to dodge the IRS’ attempt, however after a year-long legal tussle they shared the information. In 2019, the IRS sent James Harper a letter connected to the information obtained from the exchange and informed him that he “may not have properly reported” virtual currency transactions. 

Harper sued the IRS for wrongfully obtaining the information, and the court extended the 1976 Supreme Court ruling that says the Fourth Amendment does not apply to records held by a third party, like a bank.

Harper argued that, “The lower court’s ruling will effectively strip millions of Americans of meaningful privacy protections over their most sensitive financial data – simply because they use modern financial service providers.”

The court ruling makes it clear that there may not be a free flow of information or direct access for Coinbase user data, however the IRS obtains information from the exchange and likely other crypto third parties, as needed, for collecting taxes and verifying virtual currency reporting from users.