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: Active

CASE START DATE: July 15, 2020

DECIDING COURT: Pending in the U.S. Court of Appeals for the First Circuit

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

CASE DOCUMENTS

April 20, 2021 | Notice of Appeal in the U.S. Court of Appeals for the First Circuit
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March 23, 2021 | Order Granting Motion to Dismiss
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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

May 17, 2021 | Watch: NCLA Releases Tax Day Video on IRS’s Unlawful Collection of Cryptocurrency Owners’ Data

Washington, DC (May 17, 2021) – Much has changed in the lives of Americans since last tax season, including the day we file our taxes. What has not changed is the resolve of NCLA client James Harper to challenge the IRS’s unbridled power to demand and seize Americans’ private financial information without judicial process.

 

This Tax Day, the New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, released a video featuring Mr. Harper’s case, James Harper v. Charles P. Rettig, et al., currently pending review in the U.S. Court of Appeals for the First Circuit.

On August 9, 2019, Mr. Harper received a letter from the IRS informing him that the agency had obtained his financial records related to his cryptocurrency ownership. As it turned out, he was one of more than 10,000 cryptocurrency owners who received such a letter. Mr. Harper paid all applicable taxes and diligently reported every transaction he had made using three virtual currency exchanges: Coinbase, Abra, and Uphold.

Although each exchange had contractually promised Mr. Harper to protect his private information, the IRS issued a demand for his data without reasonable suspicion and without a judicial warrant or subpoena, in violation of his Fourth and Fifth Amendment constitutional rights. The First Circuit should address the breadth of abuse related to these unlawful fishing expeditions and correct an error relating to the Anti-Injunction Act (AIA).

The federal district court tossed the case in March under a theory that the AIA bars suits over “the assessment or collection of any tax.” Only this case is not about collecting taxes. Harper already paid all applicable taxes and never disputed the amount he owed. His lawsuit instead challenges IRS’s violation of his constitutional rights.

The First Circuit’s job should be made easier by today’s Supreme Court decision. In CIC Services, LLC v. IRS, the Court held that the AIA does not bar suits like Mr. Harper’s that do not challenge tax assessment or collection, but rather the IRS’s unconstitutional and intrusive information-gathering practices.

Excerpts from the video:

“The danger here is that the IRS is looking at all of your private financial information: your name, your address, your bank account number, and all of the transactions that you’ve engaged in. They’re looking at it to see what you’re up to, just in case they think that a crime has occurred. That’s not what we expect out of law enforcement, and that is a gross invasion of our privacy.”
— Caleb Kruckenberg, Litigation Counsel, NCLA

“There is no IRS exception to the U.S. Constitution. The IRS did not follow the Fourth Amendment requirements of legally obtaining Mr. Harper’s private financial information. They did not obtain a warrant. They did not obtain a subpoena. They did not obtain a court order. They did not give Mr. Harper an opportunity to respond. They did not even notify Mr. Harper that they were seeking this information. That is wrong.”
— Adi Dynar, Litigation Counsel, NCLA

“I’m hopeful that this case will show not only that the IRS was wrongful in gathering information about cryptocurrency users for no reason, but also, that it may establish good law that shows that agencies can’t just dip into any warehouse of information when they feel like it. They have to follow the rules just like you and I do.”
— James Harper, Plaintiff, Harper v. Rettig

For more information about this case visit here.

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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March 23, 2021 | District Court Ruling Would Permit IRS to Violate Constitutional Rights with Impunity

Washington, DC (March 23, 2021) – Today, the U.S. District Court for the District of New Hampshire granted the Internal Revenue Service’s (IRS) motion to dismiss the case of James Harper v. Charles P. Rettig, et al. The district court’s flawed decision would ensure that no matter how many constitutional rights the IRS violates, Americans may not hold the agency accountable. The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, represents James Harper in the lawsuit against IRS for violating his Fourth and Fifth Amendment constitutional rights by issuing a demand for his financial records from a third party without reasonable suspicion—let alone probable cause—that he violated any law.

The Fourth Amendment significantly constrains the types of searches IRS may conduct, particularly where a person, like Mr. Harper, has contracted with a digital asset exchange to keep his information private. Mr. Harper is also entitled under the Fifth Amendment’s Due Process Clause to receive notice and have an opportunity to protect his private information from IRS subpoenas before they are executed. IRS never disputed that it violated key limits on its ability to gather information through its subpoena process. And it collected Mr. Harper’s sensitive financial information, along with data for thousands of other innocent people, solely because of their lawful possession of digital currencies.

In this case, the court wrongly applied the Anti-Injunction Act (AIA), which bars suits over “the assessment or collection of any tax.” Mr. Harper has already paid all applicable taxes and never disputed the amount he owed, and his lawsuit was instead a challenge to IRS’s violation of his constitutional rights. Mr. Harper is one of 10,000 virtual currency owners who received a letter from IRS in 2019 informing him that the agency had obtained his financial records related to his ownership of bitcoin. Despite his efforts to ensure his records were properly safeguarded, IRS brazenly gathered sensitive information about Mr. Harper’s use of digital currency from one or more third-party exchanges without a lawful subpoena.

NCLA released the following statements: 

“Today’s decision would mean that IRS is immune from suit over its wrongdoing in every conceivable circumstance. The court’s decision is legally unjustifiable, and it should be swiftly reversed on appeal.”

— Caleb Kruckenberg, NCLA Litigation Counsel

“The district court’s ruling screams for a reversal from the court of appeals. It is wrong to hold that Mr. Harper, who has fully paid his taxes and does not seek a refund, cannot seek the court’s help in securing an entirely separate right to keep his private information private from a grasping government.”

— Adi Dynar, NCLA Litigation Counsel 

For more information visit case summary page here.

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

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.

Download the full document

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