U.S. Government Defends IRS Access to Coinbase User’s Crypto Records in Supreme Court Battle

The U.S. government has urged the Supreme Court to reject a legal challenge from Coinbase user James Harper, who seeks to block the Internal Revenue Service (IRS) from accessing his cryptocurrency transaction records.

In a May 30 filing, Solicitor General D. John Sauer argued that Harper has no Fourth Amendment right to privacy over financial data held by Coinbase, as he voluntarily shared it with the exchange.

The case stems from a 2016 IRS investigation into widespread underreporting of crypto gains, which led to a judicially approved “John Doe” summons compelling Coinbase to provide records on high-volume traders.

As the crypto industry grapples with regulatory scrutiny and recent security breaches, Harper’s case highlights ongoing tensions between user privacy and government oversight in the digital asset space.

Background of Harper’s Legal Challenge

Harper’s lawsuit challenges the IRS’s 2016 summons, which targeted Coinbase users trading significant volumes of Bitcoin during a period when only a fraction of traders reported crypto gains. Harper, a Coinbase user at the time, argued that the IRS’s actions constituted an unconstitutional search of his personal records.

Lower courts, including the First Circuit, ruled against him, stating that Coinbase’s records are business documents, not private papers, and that the IRS followed legal protocols.

The government’s filing cites precedents like United States v. Miller, asserting that individuals lack a reasonable expectation of privacy in third-party financial records, a stance reinforced by Coinbase’s privacy policy, which discloses potential data sharing with law enforcement.

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Government’s Argument and Industry Context

The Solicitor General’s brief emphasizes that the IRS’s summons was lawful and aligns with Supreme Court rulings on third-party data. The government contends that Harper’s voluntary use of Coinbase negates his privacy claims, as the exchange’s records are not his personal property.

Recent data indicates that the IRS has intensified its focus on crypto tax compliance, with over 10 million Americans holding digital assets in 2025, yet many still fail to report gains.

The case comes amid heightened scrutiny of Coinbase, which disclosed a May 15 data breach affecting 1% of its monthly transacting users, exposing names, balances, and transaction histories.

The breach has fueled lawsuits accusing Coinbase of inadequate security, adding complexity to the debate over user data and regulatory access.

Did You Know?
The IRS has collected over $1.7 billion in unpaid taxes from cryptocurrency transactions since 2020, reflecting its aggressive push to enforce compliance in the digital asset space.

Implications for Crypto Users and Regulation

The Supreme Court’s decision on whether to hear Harper’s case could set a significant precedent for crypto privacy rights. A denial would uphold the First Circuit’s ruling, affirming the IRS’s authority to access exchange records without violating constitutional protections.

Industry experts suggest the ruling could accelerate tax enforcement efforts, with the IRS estimating that unreported crypto gains cost the U.S. billions annually.

Meanwhile, the Coinbase breach has raised broader concerns about data security, prompting calls for stronger safeguards. As the crypto market grows, with Bitcoin trading at approximately $103,000 in May 2025, the outcome of this case could shape how exchanges balance user privacy with regulatory compliance.