James Harper v. Charles P. Rettig, et al.

CASE SUMMARY

NCLA represents Mr. Harper before the United States District Court for the District of New Hampshire. Mr. Harper’s “crime”? Holding a bitcoin wallet. The lawsuit argues that the IRS has acquired the unbridled power to demand and seize Americans’ private financial information from third parties without any judicial process in defiance of the Fourth and Fifth Amendments and statutory protections.

Mr. Harper bought his first bitcoin in 2013, and ever since then, he diligently paid all applicable taxes and reported his trades related to bitcoin holdings. Throughout these years, all his transactions were facilitated through three digital virtual currency exchanges: Coinbase, Abra, and Uphold. Given that all of them had contractually promised Mr. Harper to protect his private information, he was genuinely surprised when on August 9, 2019, he received a letter from IRS informing him that the agency had obtained his financial records related to ownership of bitcoin without any particularized suspicion of wrongdoing. Mr. Harper is one of 10,000 virtual currency owners who received such a letter, according to the IRS website.

The IRS somehow obtained Mr. Harper’s records without a valid subpoena, court order, or judicial warrant based on probable cause. The Fourth Amendment to the U.S. Constitution protects “the right of the people to be secure in their … papers … against unreasonable searches and seizures.” In this case, the IRS violated the Fourth Amendment by issuing an informal demand for Mr. Harper’s financial records from a third party even though it lacked any particularized suspicion that he had violated any law.

The complaint also says that the IRS violated the Due Process Clause of the Fifth Amendment by seizing Mr. Harper’s private financial information from the third-party virtual currency exchange(s) without first providing him with notice and an opportunity to challenge the seizure of his property. From the very beginning, the IRS acted in violation of the statute of special procedures by third-party summonses by failing to notify Mr. Harper of the summons and making a gross, baseless, and arbitrary judgment that he may not comply with IRS tax obligations.

This case presents the opportunity to correct the course of constitutional privacy law.

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CASE STATUS: Waiting for IRS’s response to the Complaint

CASE START DATE: July 15, 2020

DECIDING COURT: The U.S. District Court for the District of New Hampshire

ORIGINAL COURT: The U.S. District Court for the District of New Hampshire

CASE DOCUMENTS

January 19, 2021 | Memorandum in Opposition to Defendants’ Motion to Dismiss
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December 4, 2020 | Memorandum in Support of Motion to Dismiss
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August 5, 2020 | First Amended Complaint
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July 15, 2020 | Complaint and Demand for Jury Trial
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PRESS RELEASES

January 19, 2021 | NCLA Skewers IRS Efforts to Avoid Court Scrutiny of Its Unlawful Crypto Data Collection Practices

Washington, DC (January 19, 2021) – The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, filed a Memo in Opposition to IRS’s Motion to Dismiss today in the U.S. District Court for the District of New Hampshire in the case of Harper v. Rettig, et al. The Internal Revenue Service (IRS) seeks to dismiss the case of NCLA client and cryptocurrency holder, James Harper, who is suing the agency—and several unknown individual IRS agents in their personal capacity—over violations of his Fourth and Fifth Amendment constitutional rights.

Mr. Harper had contracted with third-party virtual currency exchanges to protect his private information against unlawful government intrusion. Despite his efforts to ensure his records were properly safeguarded, IRS brazenly gathered sensitive information about Mr. Harper’s use of virtual currency from the third-party exchanges without a lawful subpoena. NCLA contends that IRS’s attempt to avoid the Court’s jurisdiction is a misguided effort to avoid a significant constitutional challenge to IRS’s unlawful data collection practices.

Mr. Harper is one of 10,000 virtual currency owners who received a letter from IRS in 2019 informing him the agency had obtained his financial records related to ownership of bitcoin. In this case, IRS violated the Fourth Amendment by issuing an informal demand for Mr. Harper’s financial records from a third party, even though it lacked any particularized suspicion that he had violated any law.

Notably, IRS does not dispute in its motion to dismiss that it acquired Mr. Harper’s information without a lawful subpoena. IRS’s sole argument in defense of its attack on Mr. Harper’s Fourth Amendment claim is its assertion that Mr. Harper “does not have an expectation of privacy in his financial information.” However, the Fourth Amendment significantly constrains the types of searches IRS may conduct, particularly where a person has contracted with an exchange to keep his information private.

Mr. Harper is also entitled under the Fifth Amendment’s Due Process Clause to a notice and an opportunity to protect his private information from unreasonable searches and seizures. IRS concedes that it did not comply with this bare minimum due-process requirement.

NCLA released the following statements:

“When you enter into a third-party agreement, the reasonable expectation is that the third party and the government will respect contractual rights. But the IRS agents in this case departed from cherished Constitutional principles that prohibit peeking into a person’s private papers without first obtaining a judicially-approved subpoena. Not only did IRS demand and seize Mr. Harper’s private information, but it is unlawfully holding on to that data without any judicial process. NCLA will right these wrongs.”

— Caleb Kruckenberg, Litigation Counsel, NCLA

“This motion to dismiss shows how IRS requires law-abiding citizens to jump through numerous procedural hoops to even have their day in court. At the same time IRS tries to claim in the same motion that it would be impossible for them and their agents to abide by the Constitution to obtain Mr. Harper’s private financial information. Assuredly, the Constitution does not protect IRS from Mr. Harper’s suit. It protects Mr. Harper from IRS’s illegal surveillance.”

— Adi Dynar, Litigation Counsel, NCLA

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

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July 15, 2020 | NCLA Stands up for Bitcoin Investors in Suit Against IRS for Unlawful Seizure of Private Financial Data

Washington, DC (July 15, 2020) – This Tax Day, New Hampshire resident James Harper filed a lawsuit against the Internal Revenue Service (IRS) along with his tax return. The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, represents Mr. Harper in James Harper v. Charles P. Rettig, et al. before the United States District Court for the District of New Hampshire. Mr. Harper’s “crime”? Holding a bitcoin wallet. The lawsuit argues that the IRS has acquired the unbridled power to demand and seize Americans’ private financial information from third parties without any judicial process in defiance of the Fourth and Fifth Amendments and statutory protections.

Mr. Harper bought his first bitcoin in 2013, and ever since then, he diligently paid all applicable taxes and reported his trades related to bitcoin holdings. Throughout these years, all his transactions were facilitated through three digital virtual currency exchanges: Coinbase, Abra, and Uphold. Given that all of them had contractually promised Mr. Harper to protect his private information, he was genuinely surprised when on August 9, 2019, he received a letter from IRS informing him that the agency had obtained his financial records related to ownership of bitcoin without any particularized suspicion of wrongdoing. Mr. Harper is one of 10,000 virtual currency owners who received such a letter, according to the IRS website.

The IRS somehow obtained Mr. Harper’s records without a valid subpoena, court order, or judicial warrant based on probable cause. The Fourth Amendment to the U.S. Constitution protects “the right of the people to be secure in their … papers … against unreasonable searches and seizures.” In this case, the IRS violated the Fourth Amendment by issuing an informal demand for Mr. Harper’s financial records from a third party even though it lacked any particularized suspicion that he had violated any law.

The complaint also says that the IRS violated the Due Process Clause of the Fifth Amendment by seizing Mr. Harper’s private financial information from the third-party virtual currency exchange(s) without first providing him with notice and an opportunity to challenge the seizure of his property. From the very beginning, the IRS acted in violation of the statute of special procedures by third-party summonses by failing to notify Mr. Harper of the summons and making a gross, baseless, and arbitrary judgment that he may not comply with IRS tax obligations.  This case presents the opportunity to correct the course of constitutional privacy law.

NCLA released the following statements:

“The expectation is that when you enter into an agreement with a third party, the third-party and the government will respect contractual rights. But the law in this case has departed from cherished Constitutional principles and the fundamental understanding that prohibited peeking into a person’s private papers without the use of a judicially-approved subpoena. Not only did the IRS demand and seize Mr. Harper’s information, but it is unlawfully holding on to that data without any judicial process. NCLA is going to right this wrong.”

— Caleb Kruckenberg, Litigation Counsel, NCLA

“The Internal Revenue Service is notorious for treating law-abiding taxpayers as guilty until proven innocent. IRS is hiding behind cryptic, unexplained reasons for using its formidable machinery against Mr. Harper. Thankfully, the Constitution is not so obscure. The Fourth and Fifth Amendments require IRS to demonstrate that the agency followed lawful procedures before attempting to audit Mr. Harper’s cryptocurrency transactions.”

— Adi Dynar, Litigation Counsel, NCLA

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Download the full document

OPINION