Coinbase appeals to Supreme Court to end third-party doctrine allowing access to customer data

Crypto exchange Coinbase filed an amicus brief on Wednesday urging the Supreme Court to cut back on the third-party doctrine, a rule often used by the Internal Revenue Service (IRS) to demand customer information from exchanges.

Coinbase seeks to end federal law that removes customer privacy

Coinbase initiated legal proceedings against the third-party doctrine — a rule allowing the IRS to access customer data from third-party organizations — in a brief filed on Wednesday. 

The brief urged the Supreme Court to repeal the fundamental principle guiding the doctrine, particularly regarding blockchain technology and the crypto industry.

"This Court's guidance is especially important here because this case involves a new technology — blockchain — that is particularly susceptible to surveillance abuse," Coinbase noted.

The third-party doctrine opines that a customer "has no legitimate expectation of privacy in information he voluntarily turns over to third parties."

The doctrine empowers government agencies like the IRS to obtain these records, including browsing history, financial records, bank records and other sensitive data shared with a third party like banks and crypto exchanges. 

Coinbase stated that a Supreme Court ruling could redefine the IRS's ability to access digital records without warrants, impacting tax enforcement strategies. The exchange also implied that the rule has become outdated in the current technological world.

The IRS demanded Coinbase to produce financial data for over 500,000 customers in 2016 through a John Doe Summons, the briefing states. While Coinbase initially refused, a district court ordered it to provide the information but cut the number of customers to 14,355.

The district court’s ruling resulted in a lawsuit by Coinbase user James Harper in 2019. Harper sued the IRS, arguing the agency violated his Fourth and Fifth Amendments — unreasonable search/seizure and due process — rights.

The court dismissed Harper's claims, stating that his argument lacked enough privacy reason and that the IRS complied with statutory requirements in the Constitution.

Coinbase ended the briefing urging the court to grant Harper's petition and review the third-party doctrine in this digital era.