If you’re a bitcoin trader or investor, you’ve probably traded on multiple cryptocurrency exchanges and, for the most part, trusted that those exchanges are keeping your data secure from unlawful data collection just like a bank or credit card provider would. Unfortunately, that doesn’t seem to be the case.
On July 15, 2020 (Tax Day this year), New Civil Liberties Alliance (NCLA) filed a lawsuit on behalf of James Harper against the IRS, challenging the agency's unlawful collection of private cryptocurrency information.
Harper decided to take this action against the IRS after he received a letter from the agency in August 2019 as part of its ongoing effort to alert taxpayers about crypto tax filing requirements. Harper wants to hold the IRS accountable for violating his privacy and identifying him as a cryptocurrency holder.
According to a case summary, “NCLA represents Mr. Harper before the United States District Court for the District of New Hampshire. Mr. Harper’s ‘crime’? Holding a bitcoin wallet. The lawsuit argues that the IRS has acquired the unbridled power to demand and seize Americans’ private financial information from third parties without any judicial process in defiance of the Fourth and Fifth Amendments and statutory protections.”
Some of you reading may even know Harper. He bought his first bitcoin in 2013 and has been an active member of the community ever since. According to the case, he has always paid his applicable taxes and reported his bitcoin trades. Like many of you reading, Harper used a few different cryptocurrency exchanges to conduct his trades, all of which contractually promised to protect his private information.
Last year, Harper became one of 10,000 crypto holders to suddenly receive a letter from the IRS stating that it had obtained his financial records from the cryptocurrency exchanges without any particular suspicious of wrongdoing. Additionally, the IRS failed to meet its statutory duty to give Harper advanced notice and an opportunity to challenge the seizing of his crypto data.
I’m not a lawyer, but that doesn’t sound like something the IRS should be able to do. I thought the government needed a subpoena to obtain private information. Is it able to obtain any data it wants without a warrant? So, what does a lawyer on the case think of this?
“There’s no IRS exception to the Bill of Rights,” Adi Dynar, a member of the litigation counsel, told me. “The people who own cryptocurrency do not thereby give up the right to secure the privacy of their private financial information. No federal official should obtain private financial information without giving its owner adequate notice and opportunity to contest. Especially so when the federal official has not obtained a valid subpoena or warrant from a court. Otherwise, it is a short, slippery slope into an unfettered surveillance state.”
When I sign up for a cryptocurrency exchange account, or any other service with a third party that contains private information and is contractually obligated to protect my private information, that is exactly what I expect that third party to do. It’s frightening to see the third party and government sidestepping our contractual rights and law. This makes me wonder what other information is being collected by government agencies without a warrant. Unfortunately, it seems like we’re much further down the path of a surveillance state than most realize. I hope that NCLA's lawsuit will right this wrong and protect people from unlawful searches and seizures in the future.
Given NCLA’s close alignment with the cryptocurrency community, it has recently started to accept cryptocurrency to help fund this case. Your donation of bitcoin or other cryptocurrency to the New Civil Liberties Alliance is one of the most tax efficient ways to stop government overreach. Learn more and support it in its case against the IRS here.
This is a guest post by Alex Wilson, co-founder of The Giving Block. Opinions expressed are entirely his own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.