Paradigm Files Amicus Brief in Harper vs. IRS

October 20, 2023 | Rodrigo Seira

TLDR: Paradigm filed an amicus brief in support of James Harper’s lawsuit against the IRS, which challenges the agency’s ability to use “John Doe” summons as a dragnet to surreptitiously obtain the private records of large groups of crypto users.

Paradigm strongly believes that, despite its nascency, crypto and blockchain technology will play an essential role in everyday life. One in five Americans have owned crypto, with the number of blockchain participants skyrocketing over the years; indeed, as of October 20, 2023, there were over 247 million unique Ethereum addresses. Blockchain technology could eventually be used for ordinary, everyday affairs—a trip to the store, a visit to the doctor, or voting in an election. Yet the district court’s dismissal of James Harper’s complaint against the IRS threatens to curtail that potential.

The district court erred in concluding that there is no expectation of privacy when a person transacts on a crypto exchange. As suggested by the prefix “crypto”—derived from the space’s origins in cryptography—privacy is a foundational pillar of crypto transactions. There are many valid reasons why crypto users want to maintain some privacy—a user may, for example, want to keep hidden his or her participation in social movements, such as support for Ukraine’s defense against Russian aggression.

That expectation of privacy does not evaporate simply because a user chooses to transact through a centralized exchange, rather than on the blockchain itself. The district court erroneously reasoned that a crypto transaction on an exchange is like a bank transaction. But the nature and design of crypto gives rise to a more substantial expectation of privacy than that of bank records, which are often passed between intermediaries with full identifying information in view. And, as the Supreme Court clarified in Carpenter v. United States, a person does not surrender his or her expectation of privacy merely by public exposure.

Moreover, the district court failed to account for the nature of the Government’s intrusion. Harper’s lawsuit arises from a so-called John Doe summons, which is intended to allow the IRS to investigate a specific taxpayer (or a group of taxpayers) whose identity is not known to the IRS. But the IRS’s summons here was not specific at all; rather, it was akin to a drag net, designed to collect a broad swath of information on more than 10,000 users, in which the plaintiff, James Harper, happened to get caught. As Congress recognized when it authorized John Doe summonses, the privacy intrusion is more severe when an agency uses its subpoena power to conduct a fishing expedition. The Fourth Amendment does not allow the Government to do so.

For these reasons, this Court should reverse the district court’s decision as it relates to Harper’s Fourth Amendment claim.