Harper v. Rettig
| Decision Date | 18 August 2022 |
| Docket Number | 21-1316 |
| Citation | 46 F.4th 1 |
| Parties | James HARPER, Plaintiff, Appellant, v. Charles P. RETTIG, in his official capacity as Commissioner of the Internal Revenue Service; Internal Revenue Service; John Doe IRS Agents 1-10, Defendants, Appellees. |
| Court | U.S. Court of Appeals — First Circuit |
46 F.4th 1
James HARPER, Plaintiff, Appellant,
v.
Charles P. RETTIG, in his official capacity as Commissioner of the Internal Revenue Service; Internal Revenue Service; John Doe IRS Agents 1-10, Defendants, Appellees.
No. 21-1316
United States Court of Appeals, First Circuit.
August 18, 2022
Richard Abbott Samp, with whom Aditya Dynar, Caleb Kruckenberg, and New Civil Liberties Alliance were on brief, for appellant.
Kathleen E. Lyon, with whom John J. Farley, Acting United States Attorney, David A. Hubbert, Acting Assistant Attorney General, Francesca Ugolini, and Jennifer M. Rubin were on brief, for appellees.
Before Kayatta, Lipez, and Gelpí, Circuit Judges.
LIPEZ, Circuit Judge.
In August 2019, the Internal Revenue Service ("IRS") notified appellant James Harper that it possessed information about his virtual currency accounts and transactions and warned him that he could face civil or criminal enforcement action for inaccurately reporting such transactions. Believing that the IRS had acquired his personal financial records from a digital currency exchange via a third-party summons, see 26 U.S.C. §§ 7602 and 7609, appellant sued the IRS and its agents for injunctive relief and monetary damages,
alleging that the third-party summons process violated his constitutional and statutory rights. The district court concluded that it lacked subject matter jurisdiction over appellant's suit under the Anti-Injunction Act of the Internal Revenue Code, 26 U.S.C. § 7421,1 and dismissed the complaint.2 We vacate the judgment of the district court.
I.
A. Factual Background
We draw the relevant facts from appellant's complaint. In 2013, appellant opened an account with Coinbase, which he describes as "a non-party digital currency exchange that facilitates transactions in virtual currencies," including bitcoin. Appellant deposited bitcoin in his Coinbase account in 2013 and 2014. Appellant began liquidating his Coinbase holdings of bitcoin in 2015, ultimately transferring what remained in his account to a hardware wallet3 such that, by early 2016, he no longer held bitcoin via Coinbase. Appellant declared and reported income from his Coinbase transactions on his 2013, 2014, 2015, and 2016 income tax returns. Beginning in 2016, appellant and his wife sold bitcoin through the digital exchanges Abra and Uphold. Appellant declared and paid taxes on the capital gains on his bitcoin holdings in tax years 2016, 2017, 2018, and 2019.
In 2016, the IRS filed an ex parte "John Doe" administrative summons on Coinbase in the U.S. District Court for the Northern District of California.4 See United States v. Coinbase, Inc., No. 17-cv-1431-JSC, 2017 WL 5890052, at *1 (N.D. Cal. Nov. 28, 2017). Under § 7609 of the Internal Revenue Code, a "John Doe" summons can issue only after a court proceeding in which the IRS establishes that
(1) the summons relates to the investigation of a particular person or ascertainable group or class of persons,
(2) there is a reasonable basis for believing that such person or group or class of persons may fail or may have failed to comply with any provision of any internal revenue law, and
(3) the information sought to be obtained from the examination of the records or testimony (and the identity of the person or persons with respect to whose liability
the summons is issued) is not readily available from other sources.
26 U.S.C. § 7609(f). The initial summons sought nine categories of "information regarding United States persons who at any time during the period January 1, 2013 through December 31, 2015 conducted transactions in a convertible virtual currency as defined in IRS Notice 2014-21." Coinbase, 2017 WL 5890052, at *1.
After Coinbase opposed the initial summons, the IRS narrowed its scope. The narrowed summons sought the following information, with respect to accounts "with at least the equivalent of $20,000 in any one transaction type ... in any one year during the 2013-2015 period":
Request 1: [Account] registration records for each [account] owned or controlled by the user during the period stated above limited to name, address, tax identification number, date of birth, account opening records, copies of passport or driver's license, all wallet addresses, and all public keys for all [accounts].
Request 2: Records of Know-Your-Customer diligence.
Request 3: Agreements or instructions granting a third-party access, control, or transaction approval authority.
Request 4: All records of [account] activity including transaction logs or other records identifying the date, amount, and type of transaction ..., the post transaction balance, the names or other identifiers of counterparties to the transaction; requests or instructions to send or receive bitcoin; and, where counterparties transact through their own Coinbase [accounts], all available information identifying the users of such accounts and their contact information.
Request 5: Correspondence between Coinbase and the user or any third party with access to the [account] pertaining to the [account] opening, closing, or transaction activity.
Request 6: All periodic statements of account or invoices (or the equivalent).
Coinbase, 2017 WL 5890052, at *2. Coinbase and John Doe 4, who was permitted to intervene, opposed the narrowed summons. Id. Although appellant did not intervene in the litigation, he alleges that he "participate[d] as an expert in an amicus filing."5 After hearing argument, the district court permitted the government to enforce the summons with respect to Requests 1, 4, and 6. Id. at *7.6
In August 2019, appellant received a letter from the IRS notifying him that the agency "ha[d] information that you have or had one or more accounts containing virtual currency but may not have properly reported your transactions involving virtual currency." The letter warned him that he could face civil or criminal enforcement action if he failed to accurately report his virtual currency transactions.
B. Procedural History
In July 2020, appellant filed a complaint against the IRS, Commissioner Charles P. Rettig in his official capacity (collectively, "the IRS"), and ten unidentified IRS
agents. The amended complaint alleges that the IRS and its agents violated the Fourth and Fifth Amendments, as well as 26 U.S.C. § 7609(f), by...
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