Harper v. Rettig
| Docket Number | Civil 1:20-cv-00771-JL |
| Decision Date | 26 May 2023 |
| Parties | James Harper v. Charles P. Rettig, in his official capacity as Commissioner, Internal Revenue Service, et al. |
| Court | U.S. District Court — District of New Hampshire |
Richard Samp, Esq.
Jared Joseph Bedrick, Esq.
Edward J. Murphy, Esq.
Thomas P. Cole, Esq.
Ryand D. Galisewski, Esq.
This case concerns the constitutionality of the Internal Revenue Service's utilization of its “John Doe” summons procedure to obtain a taxpayer's account information from Coinbase, a virtual currency exchange. Following the issuance and enforcement of such a summons, the IRS collected account information and records from Coinbase. Some of the records it collected belonged to Plaintiff James Harper, who bought and sold bitcoin through Coinbase. Through this lawsuit, Harper seeks an injunction requiring the IRS to expunge, destroy, or return his Coinbase records and an order declaring the statute that authorized the issuance of the John Doe summons, 26 U.S.C. § 7609(f), unconstitutional.
Harper alleges that the IRS's actions constituted a seizure and search that violated the Fourth Amendment of the United States Constitution as well as his procedural due process rights under the Fifth Amendment. He further claims that the IRS violated § 7609(f) in obtaining his records. The IRS moves to dismiss for failure to state a claim upon which relief can be granted.
This court has jurisdiction over Harper's claims under 28 U.S.C. § 1331 because the claims present federal questions. After considering the parties' submissions and hearing oral argument, the court grants the motion. Harper does not have protectable Fourth or Fifth Amendment interests in the records produced by Coinbase in response to the John Doe summons. Even assuming that he did, the IRS's actions satisfied the Fourth Amendment's reasonableness requirement and provided him constitutionally adequate process under the Due Process Clause. As for Harper's statutory claim, the statute at issue does not expressly or impliedly provide taxpayers with a private right to sue the IRS for purported statutory violations. Also, a different court has already determined that the IRS satisfied the statutory requirements for a John Doe summons, and that determination is not subject to a later collateral attack. Finally, even if the court's decision was subject to collateral attack, Harper's complaint fails to state a claim that the IRS did not satisfy the elements of § 7609(f).
To defeat a Rule 12(b)(6) motion, Harper must plead “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Martinez v. Petrenko, 792 F.3d 173, 179 (1st Cir. 2015). This standard “demands that a party do more than suggest in conclusory terms the existence of questions of fact about the elements of a claim.” A.G. ex rel. Maddox v. Elsevier, Inc. 732 F.3d 77, 81 (1st Cir. 2013). In ruling on such a motion, the court accepts as true all well-pleaded facts set forth in the complaint and draws all reasonable inferences in Harper's favor. See Martino v. Forward Air, Inc., 609 F.3d 1, 2 (1st Cir. 2010). The court may also consider judicially noticed documents, information attached to or incorporated into the complaint, matters of public record, and documents introduced by Harper in his objection to the motion to dismiss or concessions in that objection, without converting the Rule 12(b)(6) motion into a motion for summary judgment. See Lyman v. Baker, 954 F.3d 351, 360 (1st Cir. 2020).
Factual background. The court draws the relevant factual background from Harper's First Amended Complaint,[1] documents attached to that complaint, and other matters of public record. In 2013, Harper opened an account with “Coinbase,” an entity that “facilitates transactions in virtual currencies such as bitcoin.”[2] Coinbase provided terms of agreement alongside its account, stating, in relevant part, that “Coinbase takes reasonable precautions, as described herein, to protect your personal information from loss, misuse, unauthorized access, disclosure, alteration, and destruction.”[3] Coinbase warned its users, however, that it “may share [their] personal information with . . . [l]aw enforcement, government officials, or other third parties when: [w]e are compelled to do so by a subpoena, court order or similar legal procedure[.]”[4] In 2013 and 2014, Harper deposited bitcoin into his Coinbase account. Harper primarily received the bitcoin as income from consulting work. Harper alleges that he declared the transactions on his 2013 and 2014 tax returns and that he declared all “appropriate income from bitcoin payments,” including capital gains tax.[5] Harper further alleges that he paid “appropriate capital gains on any bitcoin income for tax years 2015 and 2016.”[6] Harper began liquidating his holdings in the Coinbase account in 2015. By 2016, Harper no longer held any bitcoin in the Coinbase account.[7]
In 2016, the IRS petitioned ex parte under 26 U.S.C. §§ 7609(f) and 7609(h)(2) in the United States District Court for the Northern District of California for leave to serve a “John Doe” summons on Coinbase.[8] “A ‘John Doe' summons is, in essence, a direction to a third party to surrender information concerning taxpayers whose identity is currently unknown to the IRS.” Tiffany Fine Arts, Inc. v. United States, 469 U.S. 310, 313, n.4 (1985) (quoting In re Tax Liabilities of John Does, 671 F.2d 977, 978 (6th Cir. 1982)). As further detailed below, under § 7609(f), the IRS may only serve a John Doe summons after a court proceeding in which the IRS establishes that: (1) the summons relates to the investigation of a particular person or ascertainable group of persons; (2) there is a reasonable basis for believing that such 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, and the identity of the subject persons, is not readily available from other sources. See § 7609(f)(1)-(3).
Based on a review of the petition and supporting documents, the court granted the petition, determining that the John Doe summons to Coinbase:
relat[ed] to the investigation of an ascertainable group or class of persons, that there [wa]s a reasonable basis for believing that such group or class of persons has failed or may have failed to comply with any provision of any internal revenue laws, and that the information sought to be obtained from the examination of the records or testimony (and the identities of the persons with respect to whose liability the summons is issued) [wer]e not readily available from other sources.[9]
The IRS served the summons on Coinbase, which did not comply.
The IRS then filed a separate summons-enforcement petition against Coinbase in March 2017.[10] Coinbase opposed the petition, and at least one John Doe successfully intervened as well.[11] Other third parties filed amicus briefs opposing the summons, including Harper, who signed an amicus brief filed by the Competitive Enterprise Institute.[12] During the enforcement proceeding, the IRS agreed to narrow the scope of its summons.[13] Ultimately, after oral argument, the court granted the petition in part and denied it in part and ordered Coinbase to comply with a narrowed version of the summons. See United States v. Coinbase, Inc., No. 3:17-cv-01431, 2017 WL 5890052, at *1 (N.D. Cal. Nov. 28, 2017) (). The narrowed summons sought documents and various categories of information from Coinbase “accounts with at least the equivalent of $20,000 in any one transaction type (buy, sell, send, or receive) in any one year during the 2013 to 2015 period.” Id. at *8-*9.[14]
Coinbase produced account holder documents and information to the IRS in response to the narrowed summons, including information about Harper's Coinbase account from 2013 to 2015. Following its receipt of Harper's Coinbase account information, the IRS sent Harper a letter in 2019 entitled “Reporting Virtual Currency Transactions.”[15] As relevant here, the IRS told Harper the following:
We have information that you have or had one or more accounts containing virtual currency but may not have properly reported your transactions involving virtual currency, which include cryptocurrency and non-crypto virtual currencies.[16]
The IRS stated that if Harper had failed to properly report his “virtual currency transactions” then he “may be subject to future civil and criminal enforcement activity.”[17]
Procedural history. Harper filed suit in August 2020 against the IRS, its then Commissioner in his official capacity, and ten “John Doe” IRS agents. Harper's complaint contains three counts: (1) violation of the Fourth Amendment; (2) violation of the Fifth Amendment; and (3) declaratory judgment/violation of 26 U.S.C. § 7609(f). As relief for the alleged Constitutional violations in Counts 1 and 2 Harper seeks money damages from the defendants, as well as injunctive and declaratory relief. Specifically, Harper requests an order: (i) declaring § 7602, et seq., unconstitutional as applied to him under the Fourth and Fifth Amendments; (ii) requiring the IRS to expunge Harper's financial records; and (iii) prohibiting the IRS and John Does 1 through 10 from seizing financial records from “virtual currency exchanges” under § 7602, et seq., in the future. In Count 3, Harper requests a declaratory judgment that the...
To continue reading
Request your trial