In an earlier post, we started discussing the IRS’ “John Doe” summons to Coinbase, a virtual currency exchange, to obtain information about every Coinbase user, who, at any time during the period of January 1, 2013 through December 31, 2015, conducted transactions in a convertible virtual currency as defined in IRS Notice 2014-21.

One such user filed a motion to intervene in the proceeding and to quash the IRS’ summons. The IRS fought back, arguing that since that user had outed himself, the IRS no longer sought information about him. Thus, he had no stake in the proceeding and should not be permitted to intervene.

Coinbase then filed a motion to quash the summons, and a hearing was set for February 16, 2017 to address all of the parties’ motions.

The IRS now has pushed back. It claims that the entire purpose of the proceeding was to permit the IRS to serve a summons on Coinbase. The court already ordered that it may do so, and the IRS already has served that summons. Thus, the proceeding is over, and there is no case into which Coinbase or its user may intervene. Further, the IRS argues that the federal statute under which it sought the court’s permission to serve the summons does not allow the recipient or the “John Does” to challenge the summons. Even if the proceeding weren’t over, they simply aren’t given the right to intervene. As a result, the IRS argues that their attempts to do so must be denied.

Moreover, the IRS had asked the court to postpone the February 16, 2017 hearing so that it has time to consider whether it needs to file a petition to enforce the summons. In other words, the summons has been served, and Coinbase hasn’t complied with it. Now, the IRS may take steps to have the court compel that compliance. Thus far, the IRS has defended the attacks on its summons. Now, it appears to be going on the offensive.

The court has moved the hearing to March 23, 2017. We should see then whether the court will compel Coinbase to turn over its users’ information or whether the court will strike down the summons and stop the IRS from getting that information.

If you have any questions about this issue, please contact us.