(Credit: Maksim Kabakou/Shutterstock.com)
SAN FRANCISCO — A lawyer for the Internal Revenue Service said Thursday that the agency intends to narrow its request for broad swaths of account-holder information from San Francisco-based bitcoin exchange Coinbase Inc.
Federal tax enforcement officials have asked Coinbase to sift through reams of data for U.S. customers, including user communications with the company, account passwords and security settings, to allow the government to search for unreported income.
DOJ trial attorney Amy Matchison said at a court hearing before U.S. Magistrate Judge Jacqueline Scott Corley Thursday that the IRS has been in talks with Coinbase about narrowing its request to only items the agency would need to look for unreported income. In particular, Matchison said that the agency intends to retract its request for password and security setting information for U.S. Coinbase users.
Matchison’s comments came at a hearing where anonymous Coinbase account holders were seeking to intervene in the matter to oppose the government’s request for the information. Lee Weiss of Berns Weiss, who represents two John Doe account holders, argued that his clients have interests that are distinct from Coinbase’s and that it’s their information that’s at stake.
From the get-go, Corley seemed sympathetic to the account holders’ desire to be heard.
“I have to say I find it troubling that the IRS is working so hard just to keep them from having their voice heard,” said Corley, before asking the government lawyer why the IRS opposed intervention.
Matchison said that Congress had only authorized individuals or companies who were served with a request for information to stand up in court to oppose enforcement. Allowing intervention, she argued, would complicate the process laid out by Congress. Matchison also said that the John Doe account holders lacked standing, arguing that they couldn’t show any “actual injury” from Coinbase handing over lawfully requested information.
But Corley pushed back on that point. The judge said that if Coinbase handed over information that went beyond what the IRS was entitled to, she could see potential harm for account holders.
“I think it would be pretty extraordinary to say that the government getting … information that you claim they don’t have a right to get is not an injury,” said Corley, though she held off ruling whether the John Doe account holders could intervene.
Coinbase’s lawyer, Steven Ellis of Goodwin Procter, indicated at the end of the hearing that the company is planning to file its own opposition. Corley asked the IRS’s lawyer to notify the company in the next week about any changes the agency intends to make to its request to allow the company to draft its opposition accordingly.
Ross Todd is bureau chief of The Recorder in San Francisco. He writes about litigation in the Bay Area and around California. Contact Ross at email@example.com. On Twitter: @Ross_Todd.