Think Tank Attacks IRS Subpoena in Coinbase Tax Dispute

Opposition to the IRS effort to obtain user information from cryptocurrency exchange startup Coinbase is growing.

Earlier today, the libertarian think-tank Competitive Enterprise Institute (CEI) filed an amicus brief in support of Coinbase, sharply criticizing both the scope and nature of the IRS subpoena, which seeks information on Coinbase customers between the years 2013 and 2015.

The IRS effort dates back to last November, when the tax agency pushed to obtain the records with the stated aim of identifying potential tax cheats. After a US judge initially approved the "John Doe Summons", Coinbase and, later, several of its customers pushed back. The agency ultimately went to a different judge, seeking enforcement of that summons, though since then Coinbase and an unnamed customers have fought the effort in subsequent filings.

In the brief, the CEI echoed past criticisms of the IRS subpoena as overly broad. The IRS narrowed its initial request last month, trimming it to cover a smaller subset of users. In a recent filing, Coinbase that the new request would impact as many as 14,000 of its customers.

Perhaps more notably, the CEI argued that the court should quash the summons on the grounds that the IRS should be penalized for overreaching in its initial subpoena.

The group wrote:

"The IRS's subpoena should be quashed in its entirety, not just narrowed. To do otherwise would reward the practice of issuing overbroad subpoenas as a sort of bargaining position that produces better results for the government than coming to court with a well-framed subpoena in the first instance."

The CEI also argued that, per Coinbase's user agreement, it can only produce user information to authorities when "compelled" to do so – and that Coinbase has the right to counter the summons on the grounds that it is flawed.

In a blog post detailing the submission, CEI vice president Jim Harper reiterated this line of reasoning.

"That means Coinbase is required to resist invalid subpoenas, as it is doing, and it means that the data is not Coinbase's to give to the government based on an invalid subpoena," Harper wrote.

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Coinbase.

The full CEI filing can be found below:

CEI Filings by CoinDesk on Scribd

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