US Supreme Court Refuses to Review Crypto Privacy Case: IRS Upholds Right to Access User Data Without a Warrant
In a controversial but precedent-setting move, the US Supreme Court has declined to hear a case involving privacy in cryptocurrency transactions, upholding the Internal Revenue Service’s (IRS) warrantless access to user data on platforms like Coinbase, Abra, and Uphold. The decision leaves lower court rulings that favored the tax agency unchallenged, cementing the IRS’s power in the age of decentralized finance.
Harper v. Faulkender: A Landmark Privacy Case
The case stems from James Harper, a former Coinbase, Abra, and Uphold user who received a letter from the IRS in 2019 regarding his cryptocurrency activities. Harper claims he has properly reported and paid taxes on his Bitcoin holdings, but the IRS has continued to collect his account data without notice or permission through a John Doe summons issued in 2016.
The summons gives the IRS access to data on users who have traded more than $20,000 in digital assets between 2013 and 2015, though it does not target any specific individuals. Harper argues that the IRS’ actions violate his Fourth Amendment right against unreasonable searches and seizures, as well as his Fifth Amendment right to due process.
He also argued that the summons did not meet the requirements of Section 26 of the Internal Revenue Code (§ 7609(f)) and should be evaluated in light of the Administrative Procedure Act (APA), a federal law that requires government agencies to follow transparent and auditable procedures.
Supreme Court Rejects: Legal Defeat but Social Debate
After losing in lower courts, Harper filed for a writ of certiorari, asking the Supreme Court to review the constitutionality of the IRS action. However, on June 30, the Court denied the petition, upholding the rulings of the District Court of New Hampshire and the First Circuit Court of Appeals.
These courts held that:
Harper did not have a reasonable expectation of privacy regarding the data he shared with third-party exchanges.
He has no legitimate property interest in the data held by those platforms.
The IRS’s action does not constitute a final agency decision and is therefore not subject to appeal under the APA.
In short, the courts have applied the “third-party doctrine,” which holds that users lose their constitutional right to privacy when they voluntarily share information with an intermediary, a controversial principle in the digital age.
The Third-Party Doctrine and the Boundaries of Digital Privacy
The key issue in the case is whether users’ cryptocurrency data stored on exchanges is protected under the Constitution. While the government and courts currently rely on the third-party doctrine to justify warrantless data collection, many legal experts and privacy advocates say the argument is outdated.
The doctrine was developed in the days of traditional landlines and bank accounts, when information sharing with third parties was limited and controlled. However, in today's digital environment, where nearly every financial transaction, personal or commercial, goes through an intermediary, it is impractical and unfair to completely abandon privacy when using digital services.
Broader Implications: Expanded Power for the IRS and a Warning for Cryptocurrency Users
The Supreme Court's refusal to intervene could set a dangerous precedent for privacy in digital activities. Not only would it allow the IRS to access cryptocurrency transaction data without a warrant, but it would also set a precedent for other agencies to use the third-party doctrine to justify extensive surveillance without adequate judicial oversight.
While Harper’s case ended in defeat, the debate over personal financial privacy in the blockchain and Web3 era is far from over. Many lawmakers and civil society organizations will likely revisit the doctrine’s role and ask courts to adapt it to the digital age, where control over personal data is increasingly important.
Conclusion
The IRS can now access users’ cryptocurrency data from exchanges without consent or a warrant, after the Supreme Court declined to hear the Harper case. While the move is supposed to aid tax compliance and anti-money laundering efforts, it also raises serious concerns about privacy and government surveillance.
For investors and users of digital assets, the Harper case is a stark reminder: your data is not entirely yours if you’re using a centralized platform. As blockchain continues to grow,