United States District Court, N.D. California
ORDER RE: MOTIONS TO INTERVENE RE: DKT. NOS. 10, 17,
JACQUELINE SCOTT CORLW UNITED STATES MAGISTRATE JUDGE
United States of America has petitioned to enforce an
Internal Revenue Service (“IRS”) summons served
on respondent Coinbase, Inc. (“Coinbase”)
pursuant to 26 U.S.C. §§ 7402(b) and 7604(a). (Dkt.
No. 1) Does 1, 2, and 3 moved to intervene and quash the
summons, or alternatively for a protective order or
evidentiary hearing permitting limited discovery. (Dkt. Nos.
10, 17.) Does 1 and 2 also moved to proceed under fictitious
names. (Dkt. Nos. 12, 14.) The parties stipulated to a
scheduling order, requesting that the Court first determine
whether to grant the motions to intervene, which the Court
granted. (Dkt. Nos. 20, 22.) Now pending before the Court are
the motions to intervene. After the Court heard oral
argument, however, the IRS narrowed its subpoena such that it
no longer seeks records belonging to Doe 1, 2 and maybe 3.
(Dkt. No. 39.) Accordingly, the parties stipulated to
substitute Doe 4, whose records are covered by the narrowed
summons, for Doe 1 and 2 and asked the Court to decide the
motion to intervene as if it had been brought by Doe 4 in the
first instance. (Id.)
carefully considering the parties' arguments, including
those made orally, the Court GRANTS Doe 4 intervention to
challenge enforcement of the subpoena. Doe 3's motion is
denied as there is no evidence that his records are covered
by the narrowed summons and thus that he has any interest in
March 2014, the IRS issued Notice 2014-21, which describes
how the IRS applies U.S. tax principles to transactions
involving virtual currency. (Case No. 3:16-cv-06658-JSC, Dkt.
No. 2-4 at 3 ¶6.) In Notice 2014-21, the IRS stated its
position: virtual currencies that can be converted into
traditional currency are property for tax purposes, and a
taxpayer can have a gain or loss on the sale or exchange of a
virtual currency, depending on the taxpayer's cost to
purchase the virtual currency. (Id.)
November 17, 2016, the United States filed an ex parte
petition pursuant to 26 U.S.C. § 7609(h)(2)
(“Petition to Serve”) for an order permitting the
United States to serve a “John Doe”
administrative summons (“IRS Summons”) on
Coinbase, Inc. (“Coinbase”). (Id. Dkt.
No. 1.) Coinbase is an exchange that deals in convertible
virtual currency, operating a bitcoin wallet and exchange
business headquartered in San Francisco. (Id. Dkt.
No. 2-4 at 11 ¶39.) The company currently offers
buy/sell trading functionality in 32 countries, maintains
over 4.9 million wallets with wallet services available in
190 countries with 3.2 million customers served, and $2.5
billion exchanged in bitcoin. (Id.) In 2014,
Coinbase grew to one million users. (Id. at
¶40.) The IRS Summons “seeks information regarding
United States persons who, at any time during the period
January 1, 2013, through December 31, 2015, conducted
transactions in a convertible virtual currency as defined in
IRS Notice 2014-21.” (Id. at 13 ¶48.) The
requested information included:
1. Account/wallet/vault registration records for each
account/wallet/vault owned or controlled by the user during
the period stated above including, but not limited to,
complete user profile, history of changes to user profile
from account inception, complete user preferences, complete
user security settings and history (including confirmed
devices and account activity), complete user payment methods,
and any other information related to the funding sources for
the account/wallet/vault, regardless of date.
2. Any other records of Know-Your-Customer due diligence
performed with respect to the user not included in paragraph
3. For any account/wallet/vault with respect to which the
registered user gave any third-party access, control, or
transaction approval authority, all powers of attorney,
letters of wishes, corporate minutes, or other agreements or
instructions granting the third party such access, control,
or approval authority.
4. All records of account/wallet/vault activity including
transaction logs or other records identifying the date,
amount, and type of transaction (purchase/sale/exchange), the
post transaction balance, the names or other identifiers of
counterparties to the transaction; requests or instructions
to send or receive bitcoin; and, where counterparties
transact through their own Coinbase accounts/wallets/vaults,
all available information identifying the users of such
accounts and their contact information.
5. For each merchant user for which you act as Payment
Service Provider, records of all payments processed,
including records identifying the user of the wallet charged,
if a Coinbase user, or the address of the wallet charged, if
not, the date and amount of the transaction, and any other
information that will enable the merchant to identify the
6. All correspondence between Coinbase and the user or any
third party with access to the account/wallet/vault
pertaining to the account/wallet/vault, including but not
limited to letters, memoranda, telegrams, telexes,
facsimiles, e-mail, letters of instruction, and memoranda of
telephone or oral instructions received.
7. All periodic statements of account or invoices (or the
8. All records of payments to or from the user by checks,
wire or other electronic transfer, ACH transaction, PayPal
transfer, credit or debit card transaction, money order,
transfer to or from other digital currency wallet address, or
any other method, including records reflecting the form,
manner, nature, and purpose of such payment including, but
not limited to, ABA routing numbers and other routing
information, payment instructions, and any and all invoices,
billing statements, receipts, or other documents
memorializing and describing such transaction.
9. All exception reports produced by your AML system, and all
records of investigation of such exception.
(Id. Dkt. No. 2-6 at 13-14.) On November 30, 2016,
this Court granted the petition to serve the Summons.
(Id. Dkt. No. 7.)
following month, a Coinbase Customer, Jeffrey K. Berns, filed
a motion to intervene and quash the summons, or alternatively
for a protective order or evidentiary hearing. (Id.
Dkt. No. 9). The United States responded by withdrawing its
request that Coinbase provide records that pertain to
Berns' account and arguing that Berns' motion was
therefore moot. (Id. Dkt. No. 16). The IRS explained
that because it now knew Berns' name, it no longer needed
his records. (Dkt. No. 16-2.)
early January, Coinbase moved to intervene and quash the
summons, or for a protective order limiting its scope.
(Id. Dkt. No. 19). The United States subsequently
initiated this current action to enforce the IRS Summons.
(Dkt. No. 1.) Shortly thereafter, Berns and Coinbase withdrew
their motions to quash. (Case No. 3:16-cv-06658-JSC, Dkt.
Nos. 31, 34). The Court then related the Petition to Serve
action (No. 3:16-cv-06658-JSC) to this Petition to Enforce
action. (Dkt. No. 6). Rather than issue an Order to Show
Cause to Coinbase to show cause why the Summons should ...