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Coinbase user files to block IRS from accessing bitcoin users’ data

In the latest development in the Coinbase-IRS tussle, a user of the cryptocurrency exchange has filed a motion in federal court seeking to block the Internal Revenue Service (IRS) from accessing personal and transactional information of individuals who used the Coinbase’s platform during 2013-2015.

The news comes after the IRS received the permission to serve a summons on Coinbase to disclose its customer records in order to investigate probable tax fraud by its users.

According to the official announcement on the Berns Weiss LLP website, the motion to intervene and to quash a summons issued by the IRS to Coinbase was filed in San Francisco on behalf of Los Angeles attorney Jeffrey K. Berns, the Managing Partner of Berns Weiss LLP, who used Coinbase to buy and sell bitcoins.

“There is no legitimate reason to seek these records,” said Berns. “Individuals with no taxable events shouldn't be subject to a complete investigation because the IRS doesn’t understand a developing technology.”

The motion is currently scheduled to be heard on January 19, 2017.  In the event that the court that approved the summons is not prepared to quash it without further information, Berns has alternatively requested that the Court schedule an evidentiary hearing and allow Berns to obtain documents and a deposition from the IRS, it said.

The customer data sought by the IRS includes the identification of Coinbase’s U.S. customers and substantial private security and financial information for those customers. Berns estimates that over a million Americans are subject to the IRS summons.

Berns’ motion states that complying with such an order would expose private customer data to hackers who would potentially be able to steal the funds, especially when the IRS itself was hacked between 2014 and mid-2015, resulting in the theft of 700,000 Social Security numbers. The motion states that sharing sensitive information with the agency is a risky endeavor.

“Information concerning a virtual currency customer’s account is highly sensitive. If this security information is obtained by a hacker who uses the information to misappropriate virtual currency, there is no way for the true owner of that virtual currency to recover it. If the IRS were to obtain this information, which again, is unrelated to tax compliance, it could expose the government to huge potential liability from Coinbase customers if the keys are not properly safeguarded”, the filing said.

“This issue is particularly relevant here,” the motion adds, “as the federal government, including the IRS, has recently fallen prey to huge data breaches from both state-sponsored and independent hacker organizations.”

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