A Coinbase client is challenging the IRS’s actions in seizing his financial records from that cryptocurrency exchange using a "John Doe" summons, Accounting Today reported.

The case centers on whether the IRS can seize financial records using such a summons without notifying the account holders or allowing them to contest the summons.

James Harper, the plaintiff in the case of Harper v. Rettig, is contesting the IRS's motion to dismiss the suit. In arguments heard Monday at the U.S. District Court for the District of New Hampshire, Harper’s legal representative, the New Civil Liberties Alliance (NCLA), claims that the IRS violated his statutory rights, and his Fourth and Fifth Amendment rights, by seizing his documents without probable cause to believe he had under-reported his income or failed to pay tax, and by denying him procedural due process to contest the seizure.

In November 2016, the IRS issued a third-party summons to Coinbase, demanding that the crypto company turn over the financial records of hundreds of thousands of unnamed customers. In August 2018, the IRS notified Harper in a form letter that it possessed information about his virtual currency accounts and transactions, warning him that he could face civil or criminal enforcement actions for inaccurate reporting of the transactions.

Harper was one of 10,000 virtual currency owners who received such a letter, according to the NCLA.

In July 2020, Harper sued the IRS in the District of New Hampshire, but the court dismissed the case, concluding that it lacked subject matter jurisdiction. In August 2022, a three-judge panel of the U.S. Court of Appeals for the First Circuit reversed, unanimously ruling that the district court did have jurisdiction over Harper's claim about gathering private financial information about his use of virtual currency from third-party exchanges without a lawful subpoena. The appeals court remanded the case back to the district court, and the IRS once again moved to dismiss the case.

“In addition to its statutory shortcomings, [the] IRS violated Mr. Harper’s property interests and liberty interests in the privacy of his financial records, which contain a history of his transactions over a three-year period,” the NCLA stated in February, when it filed its motion to dismiss the case. “By using a John Doe summons, [the] IRS denied him an opportunity to raise the full range of objections routinely available to taxpayers whose identity is known to IRS. …The U.S. District Court for the District of New Hampshire should now deny [the] IRS’s Motion to Dismiss and address the agency’s alarming information-gathering practices.”

The IRS has, until now, been successful in preventing federal courts from asserting jurisdiction over a constitutional challenge to its data collection practices, according to Accounting Today.

"The Supreme Court has long held that the fundamental requirement of the constitutional right to due process of law is that the government may not deprive citizens of their liberty interests or property interests without providing them with a hearing at which they can object to that deprivation," NCLA senior litigation counsel Rich Samp said to Accounting Today. "[The] IRS violated that fundamental due-process requirement in this case. It seized Mr. Harper's financial records without giving him a right to object, or even letting him know what it was doing."

In this case, he said, “the IRS confiscated our client's financial records without any sort of hearing and without even letting him know what it was doing. Indeed, the IRS has never claimed to have any evidence that our client has not complied with the tax laws."