Beware the IRS Bitcoiners!

I'm still scratching my head on what is a "realization event" every time I exchange Bitcoin. I'm not a tax evader even though I don't agree with the level of taxation in the first place...

Reposting a summary from the case of United States v. Coinbase Inc. from Tax Analysts:

Government Opposes Coinbase Customers

Intervening in IRS Summons Case

Citations: United States v. Coinbase Inc.; No. 3:17-cv-01431

SUMMARY BY TAX ANALYSTS

The government filed in a U.S. district court an opposition to motions by Coinbase Inc. customers

seeking to intervene in the government's suit to enforce an IRS summons against Coinbase,

arguing that the customers do not have a legally protectable interest and can't show that they

will be impaired by the disposition of the case.

FULL TEXT PUBLISHED BY TAX ANALYSTS

UNITED STATES OF AMERICA,

Petitioner,

COINBASE, INC.,

Respondent.

UNITED STATES DISTRICT COURT FOR THE

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

DAVID A. HUBBERT

Acting Assistant Attorney General

JEREMY N. HENDON (ORBN 982490)

AMY MATCHISON (CABN 217022)

Trial Attorneys

United States Department of Justice, Tax Division

P.O. Box 683, Ben Franklin Station

Washington, D.C. 20044

Telephone: (202) 353-2466

(202) 307-6422

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Fax: (202) 307-0054

E-mail: [email protected]

[email protected]

BRIAN J. STRETCH (CABN 163973)

United States Attorney

THOMAS MOORE (ALBN 4305-O78T)

Chief, Tax Division

COLIN C. SAMPSON (CABN 249784)

Assistant United States Attorney

450 Golden Gate Avenue, 11th Floor

San Francisco, California 94102

Telephone: (415) 436-7020

Email: [email protected]

Attorneys for United States of America

UNITED STATES’ OPPOSITION TO JOHN DOE 1, 2,

AND 3’S MOTIONS TO INTERVENE

DATE: June 29, 2017

TIME: 9:00 a.m.

LOCATION: Courtroom F, 15th Floor

450 Golden Gate Avenue

TABLE OF CONTENTS

I. INTRODUCTION

II. BACKGROUND

III. ARGUMENT

A. John Does 1, 2 and 3 Do Not Have a Right to Intervene in this Enforcement Proceeding

John Does 1, 2 and 3 Do Not Have a Significant Protectable Interest in this Proceeding
John Does 1, 2 and 3 Will Not be Impaired by the Disposition of this Action.

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John Does 1, 2 and 3 Do Not Have a Unique Perspective

B. John Does 1, 2 and 3 Should Not be Permitted to Permissively Intervene in this Enforcement

Proceeding

John Doe 1 and John Doe 2 Have Failed to Identify Any Applicable Waiver of Sovereign

Immunity.

The intervention of John Does 1, 2 and 3 Will Unduly Delay and Prejudice the Adjudication of

the Parties’ Rights.

IV. CONCLUSION

TABLE OF AUTHORITIES

Cases

Alvarado v. Table Mountain Rancheria, 509 F.3d 1008 (9th Cir. 2007)

Donaldson v. United States, 400 U.S. 517 (1971).

Dunn & Black P.S. v. U.S., 492 F.3d 1084 (9th Cir. 2007)

Freedom From Religion Found., Inc. v. Geithner, 644 F.3d 836 (9th Cir. 2011)

Gilbert v. DaGrossa, 756 F.2d 1455 (9th Cir. 1985)

In re Grand Jury Proceedings, 40 F.3d 959 (9th Cir. 1994)

Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992)

Mangum v. Action Collection Serv., Inc., 575 F.3d 935 (9th Cir. 2009)

Perry v. Schwarzenegger, 630 F.3d 898 (9th Cir. 2011)

Reiserer v. United States, 479 F.3d 1160 (9th Cir. 2007)

Reisman v. Caplin, 375 U.S. 440 (1964)

Smith v. Maryland, 442 U.S. 735 (1979)

Strong v. United States, 57 F. Supp. 2d 908 (N.D. Ca. June 22, 1999)

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Tiffany Fine Arts, Inc. v. United States, 469 U.S. 310 (1985)

Town of Chester, New York v. Laroe Estates, Inc., __ S.Ct. __, 2017 WL 2407473 (2017)

United States v. Arthur Young & Co., 465 U.S. 805 (1984)

United States v. BDO Seidman, 337 F.3d 802 (7th Cir. 2003)

United States v. Bisceglia, 420 U.S. 141 (1975)

United States v. Clarke, __ U.S. __, 134 S.Ct. 2361 (2014)

United States v. Dalm, 494 U.S. 596 (1990)

United States v. Euge, 444 U.S. 707 (1980)

United States v. First Family Mtge. Corp., 739 F.2d 1275 (7th Cir. 1984)

United States v. Gilleran, 992 F.2d 232 (9th Cir. 1993)

United States v. Golden Valley Elec. Ass’n, 689 F.3d 1108 (9th Cir. 2012)

United States v. Kersting, 891 F.2d 1407 (9th Cir. 1989)

United States v. Miller, 425 U.S. 435 (1976)

United States v. Morton Salt, 338 U.S. 632 (1950)

United States v. Nordic Village, Inc., 503 U.S. 30 (1992)

United States v. Powell, 379 U.S. 48 (1964)

United States v. Ritchie, 15 F.3d 592 (6th Cir. 1994)

United States v. Samuels, Kramer & Co., 712 F.2d 1342 (9th Cir. 1983)

United States v. Sherwood, 312 U.S. 584 (1941)

United States v. Sidley Austin Brown & Wood LLP, No. 03 C 9355, 2004 WL 816448 (N.D. Ill. Apr. 15, 2004)

United States v. Sidley Austin Brown & Wood LLP, No. 03 C 9355, 2004 WL 905930 (N.D. Ill. Apr. 28, 2004)

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Vermont Agency of Natural Resources v. United States, 529 U.S. 765 (2000)

Statutes

26 U.S.C. § § 7402(a)

I.R.C. § 7602(a) 3

I.R.C. § 7609(a)(1)

I.R.C. § 7609(b)(1)

I.R.C. § 7609(b)(2)(A)

I.R.C. § 7609(c)(2)

I.R.C. § 7609(c)(3)

I.R.C. § 7609(f)

I.R.C. § 7609(h)(2)

I.R.C. §§ 6201(a)

I.R.C. §§ 7402(b)

Rules

Fed. R. Civ. P. 24(a)

Fed. R. Civ. P. 24(a)(2)

Fed. R. Civ. P. 24(b)(3).

The United States of America submits this Opposition to the Motions to Intervene filed by John Doe 1

and John Doe 2 (Docket No. 10) and John Doe 3 (Docket No. 19).

I. INTRODUCTION

The IRS is conducting an investigation to determine the identity and correct federal income tax

liabilities of United States persons who conducted transactions in convertible virtual currency during

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2013-2015. In order to determine the identity of such U.S persons, who have transacted in a medium

of exchange that touts as one of its primary benefits the anonymity of the users, the IRS sought and

received permission from the Court to serve a summons on Coinbase, which operates a bitcoin wallet

and exchange business.

After discussions with Coinbase failed to result in Coinbase’s production of the books, records, papers,

and other data demanded in the summons, the United States brings this action seeking an order

enforcing the summons and requiring Coinbase to comply. Despite any legal basis to do so, John Does

1, 2 and 3 now seek the right to intervene in this action and assert their own claim to quash the

summons, for a protective order, or for an evidentiary hearing and limited discovery. Because the IRS

has the Congressional mandate to make inquiries into the tax liability of every person who may be

liable to pay an internal revenue tax, and such mandate is not limited to instances where there is an

indicia of tax avoidance, John Does 1, 2 and 3 do not have a significant protectable interest mandating

their intervention in this action of right. Additionally, the Does cannot show that they will impaired by a

disposition of this action because the law is clear that taxpayers have no legal protection to shield their

identities or account information from the IRS.

Further, the Does are not entitled to permissively intervene in this action because the United States

has not waived its sovereign immunity for claims brought by a John Doe seeking to quash a summons

and thus they cannot establish an independent ground for jurisdiction. Even if John Does 1, 2 and 3

could establish an independent ground for jurisdiction, they still would not be entitled to permissively

intervene in this action. They cannot establish that they have Article III standing to pursue their cause

of action against the government and their intervention would necessarily unduly delay and prejudice

the adjudication of the parties’ rights due to the sweeping relief they seek.

Because John Does 1, 2 and 3 cannot meet their burden to establish that they are entitled to

intervention of right, or even be allowed to permissively intervene, the Court should deny their

motions.

II. BACKGROUND

Intervention under Rule 24 is not automatic in all summons proceedings because Congress has created

a comprehensive scheme governing the issuance and enforcement of IRS summonses. That scheme, in

particular as it applies to John Doe summonses as discussed below, precludes the intervention of John

Does 1, 2 and 3 in this enforcement proceeding.

The United States has a system of taxation that relies on the good faith and integrity of each taxpayer

to disclose completely and honestly all information relevant to his or her tax liability. See United States v.

Clarke, __ U.S. __, 134 S.Ct. 2361, 2365 (2014); United States v. Arthur Young & Co., 465 U.S. 805, 815-16

(1984). “Nonetheless, it would be naive to ignore the reality that some persons attempt to outwit the

system.” United States v. Bisceglia, 420 U.S. 141, 145 (1975). Accordingly, Congress has conferred upon

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the IRS the duty to make inquiries, determinations, and assessments of all taxes, and has

correspondingly given it expansive information gathering authority, including the power to compel

disclosure, for that purpose. I.R.C. §§ 6201(a), 7601(a), 7602; see Arthur Young & Co., 465 U.S. at 816.

The summons power granted to the IRS under Section 7602 is the centerpiece of that authority. That

power is broad, and is designed to enable the IRS to conduct effective tax investigations. See Arthur

Young & Co., 465 U.S. at 816. That statute authorizes the IRS to examine records, issue summonses, and

take testimony for the purpose of “ascertaining the correctness of any return,” “making a return where

none has been made,” “determining the liability of any person for any internal revenue tax,” or

“inquiring into any offense connected with the administration or enforcement of the internal revenue

laws.” I.R.C. § 7602(a), (b); see United States v. Euge, 444 U.S. 707, 710-11 (1980).

An IRS summons is not self-enforcing, however. See Clarke, 134 S.Ct. at 2367; Donaldson v. United States,

400 U.S. 517, 524 (1971); United States v. Gilleran, 992 F.2d 232, 233 (9th Cir. 1993). If a party refuses to

comply with a summons, the Government may enforce the summons only after filing a petition in a

district court and obtaining an order compelling the production of the requested materials or

testimony. See I.R.C. §§ 7402(b), 7604; Clarke, 134 S.Ct. at 2367; Gilleran, 992 F.2d at 233. This judicial

involvement provides the appropriate check on the executive branch in its exercise of the summons

power and serves to safeguard the taxpayer’s procedural rights. See Reisman v. Caplin, 375 U.S. 440,

449 50 (1964); Bisceglia, 420 U.S. at 146.

Congress has specified certain additional procedures that the IRS must follow in issuing a summons

directed to a third party concerning the tax liability of another person. Generally, if the IRS serves a

summons on a third party that requests the production of records pertaining to the tax liability of an

identified person other than the third party itself, then that other person must be served with timely

notice of the summons. I.R.C. § 7609(a)(1). That “noticee” acquires certain procedural rights, including

the right to file a petition in the district court to quash the summons, see I.R.C. § 7609(b)(2)(A), and — if

the Government brings an enforcement action under Section 7604 against the summoned party — the

right to intervene in that proceeding, see I.R.C. § 7609(b)(1). The notice requirement and noticee

procedural rights do not apply in all circumstances, however. For example, notice is not required to be

given, and thus no noticee procedural rights to quash are authorized, if the summons was issued in aid

of collection of a tax liability or issued by an IRS criminal investigator in connection with a criminal

investigation (I.R.C. § 7609(c)(2)), or if the summons is a “John Doe” summons (I.R.C. § 7609(c)(3)).

The investigative power of the IRS also includes the power to issue “John Doe” summonses, that is,

summonses that do not identify the person or persons with respect to whose tax liabilities information

is sought. See Bisceglia, 420 U.S. at 148-49. In such a case, “where the IRS does not know the identity of

the taxpayer under investigation, advance notice to that taxpayer is, of course, not possible.” Tiffany

Fine Arts, Inc. v. United States, 469 U.S. 310, 316-17 (1985) (emphasis in original). As a substitute for that

notice, the Code requires the IRS first to obtain leave from a district court before it may serve a “John

Doe” summons on a third party. See I.R.C. § 7609(f); Tiffany Fine Arts, 469 U.S. at 317. In order to obtain

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such leave, the IRS must demonstrate to the district court that: (1) “the summons relates to the

investigation of a particular person or ascertainable group or class of persons;” (2) “there is a

reasonable basis for believing that such person or group or class of persons may fail or may have

failed to comply with any provision of any internal revenue law;” and (3) the information sought to be

obtained from the summons, and the identity of the person or persons with respect to whose liability

the summons will be issued, are “not readily available from other sources.” I.R.C. § 7609(f). The

proceeding before the district court is ex parte, and the district court makes its determination whether

the statutory requirements have been satisfied solely on the basis of the Government’s petition and its

supporting affidavits. I.R.C. § 7609(h)(2); see Tiffany Fine Arts, 469 U.S. at 317.

The district court’s review of a John Doe summons under Section 7609(f) prior to its issuance operates

as a substitute for the review that would take place if a noticee were to file a motion to quash a

summons under Section 7609(b). “In effect, in the John Doe context, the court takes the place of the

affected taxpayer under §§ 7609(a) and (b) and exerts a restraining influence on the IRS.” Tiffany Fine

Arts, 469 U.S. at 320. Because the district court acts in this capacity in a Section 7609(f) proceeding,

Congress did not see fit to duplicate that proceeding by extending the right to bring a motion to quash

to a John Doe; instead, the statute authorizes such a motion to be brought only by a person who is

identified in the summons. I.R.C. § 7609(a)(1), (b)(2)(A); see also I.R.C. § 7609(c)(3) (excluding John Doe

summonses from petitions to quash). Similarly, Congress extended an automatic right of intervention

in an enforcement proceeding against a summoned party only to a noticee. I.R.C. § 7609(a)(1), (b)(1), (c)

(3).

In summary, “[t]he mechanism for a taxpayer’s challenge to a summons differs according to the

statutory provision under which the summons is issued.” United States v. Ritchie, 15 F.3d 592, 597 (6th

Cir. 1994). The proper procedure for a taxpayer who receives an IRS summons but does not wish to

comply is to wait for the IRS to bring an enforcement proceeding in district court and challenge the

summons in that proceeding. See Strong v. United States, 57 F. Supp. 2d 908, 915 (N.D. Ca. June 22,

1999). If the summons is issued to a third party and it concerns an identified taxpayer, that taxpayer

may move to quash the summons, or he may intervene in an enforcement action brought by the IRS

against the third party. See I.R.C. § 7609(b)(1), (b)(2)(A); Ritchie, 15 F.3d at 597. If the summons is issued

to a third party and it concerns an unidentified taxpayer, a district court must first grant the IRS leave

to serve the summons under Section 7609(f). The taxpayer may not intervene in the Section 7609(f)

proceeding and may not move to quash the summons after its issuance. See I.R.C. § 7609(f), (h)(2), (c)

(3).

This Court’s review of the John Doe summons to Coinbase prior to its issuance under Section 7609(f)

served as a substitute for the review that a named taxpayer could seek through a motion to quash. See

Tiffany Fine Arts, 469 U.S. at 320. The statute accordingly precludes any party from duplicating this

review by filing a motion to quash a John Doe summons. See I.R.C. § 7609(c)(3); Ritchie, 15 F.3d at 397.

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Taxpayers do not have a general right, apart from the statutory grant of jurisdiction in Section 7609, to

move to quash an IRS summons. See Reisman, 375 U.S. at 450. Because John Does 1, 2 and 3 do not fall

within the class of taxpayers who are authorized under Section 7609 to file a motion to quash, they are

foreclosed from seeking judicial review of the summons issued to Coinbase. This is as Congress

intended:

Congress, however, did not seek to ensure that the IRS have an adversary in all summons

proceedings. All that it did was require that a party with a real interest in the investigation — or the

district court in the John Doe context — have standing to challenge the IRS’s exercise of its

summons authority. It is not up to us, in construing the scope of this authority, to identify a problem

that did not trouble Congress, or to attempt to correct it.

Tiffany Fine Arts, 469 U.S. at 322; see also United States v. First Family Mtge. Corp., 739 F.2d 1275, 1278-79

(7th Cir. 1984) (attempt by taxpayer, outside of waiver of immunity in Section 7609, to restrain IRS from

investigation of tax liability is barred by Anti-Injunction Act).

III. ARGUMENT

A. John Does 1, 2 and 3 Do Not Have a Right to Intervene in this Enforcement Proceeding.

Only under certain circumstances may a taxpayer have a right to intervene in a summons enforcement

action under Fed. R. Civ. P. 24(a). Rule 24(a)(2) provides in pertinent part:

(a) Intervention of Right. Upon timely application anyone shall be permitted to intervene in an

action . . . (2) when the applicant claims an interest relating to the property or transaction which is

the subject of the action and the applicant is so situated that the disposition of the action may as a

practical matter impair or impede the applicant’s ability to protect that interest, unless the

applicant’s interest is adequately represented by existing parties.

John Does 1, 2 and 3 must prove that “(1) their application is timely; (2) they have an interest relating to

the subject matter of the action; (3) there is a risk that their interest will be impaired by the action’s

disposition; and (4) their interests are not represented by the Government or [the summoned party].”

United States v. Sidley Austin Brown & Wood LLP, No. 03 C 9355, 2004 WL 816448, at *3 (N.D. Ill. Apr. 15,

(citation and internal quotations omitted). Moreover, intervention is a matter of right only where

a taxpayer has a “significantly protectable interest” in the property that is the subject of the summons

enforcement proceeding, that is, a claim of privilege or a claim that it would be an abuse of process if

the court were to enforce the summons. Donaldson, 400 U.S. at 531. The failure to establish even just

one of the four elements requires that the motion to intervene be denied. Id.; Sidley, 2004 WL 816448,

at *3.

The United States does not dispute that John Does 1, 2 and 3 have timely applied to intervene in this

proceeding. However, that is the only required element of intervention that they can establish and so

their motions to intervene should be denied.

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John Does 1, 2 and 3 Do Not Have a Significant Protectable Interest in this Proceeding.

John Doe 1 and John Doe 2 allege that their significant protectable interest here is based on an abuse

of process claim rooted in the following: 1) that the IRS is not able and does not intend to review the

tax returns of the Coinbase customers for which it seeks identities, and 2) that the summons has not

been tailored to “indicia of tax-avoidance conduct.” Docket No. 10 at 11:9-13. Neither of these two, or

the combination of both, constitutes an abuse of process. An abuse of process in the summons

context, as defined by the Supreme Court (and acknowledged by John Does 1, 2 and 3), “would take

place if the summons had been issued for an improper purpose, such as to harass the taxpayer or to

put pressure on him to settle a collateral dispute, or for any other purpose reflecting on the good faith

of the particular investigation.” United States v. Powell, 379 U.S. 48, 58 (1964).

That the IRS might make inquiries into the tax liability of every person who may be liable to pay an

internal revenue tax, as is its Congressional mandate, is not an abuse of process. Section 7602

authorizes the IRS to examine “any books, papers, records, or other data which may be relevant or

material.” (Emphasis added.) In United States v. Arthur Young & Co., 465 U.S. 805, 814 (1984), the Court

stated that the language “may be” reflects Congress’s express intention to allow the IRS to obtain

“items of even potential relevance to an ongoing investigation, without reference to its

admissibility.” (Emphasis in original.) The IRS need not show that the “documents it seeks are actually

relevant in any technical, evidentiary sense.” Arthur Young, 465 U.S. at 814. In Powell, the Supreme Court

noted that the IRS can issue a summons to investigate “‘merely on suspicion that the law is being

violated, or even just because it wants assurance that it is not.’” 379 U.S. at 57 (quoting United States v.

Morton Salt, 338 U.S. 632, 642-43 (1950)). Thus, in applying the Powell test, the question is not whether

the records sought, when disclosed, will contradict a taxpayer’s return, but whether the records “might”

throw light upon the correctness of a return. Arthur Young, 465 U.S. at 814-15 & n.11. The IRS need not

accept the word of the summoned party that records are not relevant. It is entitled to determine that

fact for itself. See Tiffany Fine Arts, 469 U.S. at 323.

John Doe 1 and John Doe 2 speculate that the IRS is not able and does not intend to examine the tax

returns of Coinbase users. Docket No. 10 at 11:9-10. This wholly unsupported theory is contradicted by

the evidence in the record. As Senior Revenue Agent Utzke has testified, the IRS is conducting an

investigation to determine the identity and correct federal income tax liabilities of United States

persons who conducted transactions in a virtual currency during 2013-2015. Docket No. 3 at 2: ¶ 2.

Whether the IRS actually examines the tax returns of every single person identified in their

investigation is not relevant to the ultimate inquiry before this Court which is whether the summons:

(1) was issued for a legitimate purpose; (2) seeks information relevant to that purpose; (3) seeks

information that is not already within the IRS’s possession; and (4) satisfies all administrative steps

required by the Internal Revenue Code. Powell, 379 U.S. at 57-58. The fulfillment of the IRS’s mandate

from Congress, to make inquiries into the liability of every person who may be liable to pay, to include

U.S. persons who have transacted in a virtual currency, is a legitimate purpose in issuing a summons.

Further, enforcement of a summons, issued for that very legitimate purpose, cannot be an abuse of

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this Court’s process. Indeed, the Does have failed to cite, and the United States is not aware that, any

authority exists for their proposition that the IRS is required to use every piece of information that is

returned by a summons in order for it to have been considered properly issued and enforceable. The

request of John Doe 1 and John Doe 2 that this Court find such a requirement is absurd.

Furthermore, the argument of John Does 1, 2 and 3 that the summons should have been tailored to

return the identities of only U.S. persons who demonstrate “indicia of tax-avoidance” or have engaged

in tax avoidance schemes is not only irrelevant but is also vague. The Does do not explain what they

mean by “tax-avoidance” nor do they offer what that these indicia might be. If what the Does are

suggesting is that a criminal standard for tax avoidance is used, any such standard need not be

satisfied for an IRS examination. Again, the IRS can issue a summons to investigate just because it

wants assurance that the law is not being violated. Powell, 379 U.S. at 57. To the extent the Does raise

their “indicia of tax-avoidance” argument to assert that the IRS has improperly issued a John Doe

summons, that matter was already decided when this Court granted the Petition for Leave to Serve

“John Doe” Summons, Case No. 3:16-cv-6658-JSC, November 30, 2016, Docket No. 7. The Does cannot

use this enforcement proceeding as a mechanism to challenge the factors under I.R.C. § 7609(f) for

issuing a “John Doe” summons. United States v. Samuels, Kramer & Co., 712 F.2d 1342, 1346 (9th Cir.

(stating that “the three factual determinations that a district court must make under section 7609

(f) before issuing its ex parte authorization of a John Doe summons may not be challenged” in an

enforcement proceeding).

To the extent the Does’ tax-avoidance argument pertains to simply not reporting all income on a tax

return, that is part of the reason the IRS has launched this investigation. The IRS is aware that U.S.

persons are transacting in virtual currency. As explained in IRS Notice 2014-21, 2014-1 C.B. 938, tax

consequences exist as a result of those transactions. And the IRS is aware, based upon the data it

possesses that reflects taxpayers’ self-reporting, that there seems to be a substantial gap between the

number of people transacting in virtual currency (for which tax consequences might attach) and those

that are reporting such transactions. Docket No. 3 at 4: ¶ 13. There are many reasons why these U.S.

persons are failing to properly report the tax consequences of their virtual currency transactions and

one of which may be tax avoidance. It does not make any sense (nor is it possible) for the IRS to limit its

investigation into ferreting out only those unknown U.S. persons who have some sort of specific intent.

And, again, the Does have failed to cite, and the United States is not aware of, any authority that

supports their proposition that a summons is only enforceable if the scope is limited to revealing the

identities of U.S. persons who demonstrate indicia of tax-avoidance conduct as the Does might define

it. The request that this Court find such is also absurd.

The IRS’s investigation into the identities of U.S. persons who may be failing to properly report their tax

liabilities is a legitimate purpose for which the IRS is pursuing the summons at issue here. This Court’s

enforcement of such would not constitute an abuse of its process and the baseless speculation of John

Does 1, 2 and 3 about what the IRS may do with the information returned by the summons or how it

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may have narrowed its investigation does not amount to a protectable interest sufficient to justify

intervention as a matter of right.

John Does 1, 2 and 3 Will Not be Impaired by the Disposition of this Action.

John Does 1, 2 and 3 have articulated that their significant protectable interest in this proceeding is that

it would be an abuse of this Court’s process to enforce the IRS summons because the IRS is not able to

examine every Coinbase customer and the summons was not limited to U.S. persons engaged in tax

avoidance. Despite that, they argue that their interests will be impaired by disposition of this action

because their identities and transaction information will become known to the IRS even though they

are not the subject of an IRS investigation, there is no basis for such an investigation, the IRS has not

identified any basis for the disclosure of identification and transaction information, and that the IRS will

use the summoned information to find patterns and make predictions. Docket No. 10 at 11:22-28;

Docket No. 19 at 8:1-20. Setting aside that the protectable interest they have identified does not match

the impairment they claim to be at risk of suffering, it is clear that what John Does 1, 2 and 3 really

object to in this proceeding is their identities becoming known to the IRS. But, case law is clear that

there is no legal protection afforded taxpayers to shield their identities from the IRS. See Bisceglia, 420

U.S. at 150-51; United States v. BDO Seidman, 337 F.3d 802, 812-13 (7th Cir. 2003); Ritchie, 15 F.3d at 601;

United States v. Kersting, 891 F.2d 1407, 1409 (9th Cir. 1989); Sidley, 2004 WL 816448.

Moreover, as with bank, credit card, or brokerage accounts, the IRS has the authority to obtain financial

records, including transactional records, when it is examining a tax return. See Reiserer v. United States,

479 F.3d 1160, 1165 (9th Cir. 2007) (“there is no confidentiality where a third party such as a bank

either receives or generates the documents sought by the IRS”). The result here should be no different

— there is no significant protectable interest being impaired — simply because John Does 1, 2, and 3

utilized virtual currency. Also, the law does not recognize a desire to not have one’s tax returns

examined as worthy of legal protections. Donaldson, 400 U.S. at 530. Further, it is well established that

the IRS need not have probable cause to examine the correctness of returns or the correct liabilities of

any taxpayer. Powell, 379 U.S. at 48. Although John Does 1, 2 and 3 may be affected by the disposition

of this case because the IRS may learn their identities, that does not constitute an impairment of a

protectable interest. Accordingly, their motions should be denied.

John Does 1, 2 and 3 Do Not Have a Unique Perspective.

John Doe 1 and John Doe 2 argue that neither the government, nor Coinbase, can fully represent their

unique interests in this proceeding. However, in so arguing, John Doe 1 and John Doe 2 again diverge

from their previously expressed interest in arguing about an abuse of this Court’s process to instead

admitting that their “primary interest is protecting the privacy of Coinbase’s users’ information.” Docket

No. 10 at 12:15-21. But Coinbase’s users have no expectation of privacy in their account information

that will be damaged by disclosure of that information to the IRS. In United States v. Miller, 425 U.S. 435

(1976) the Supreme Court expressly held that there is no “legitimate expectation of privacy” in

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information kept in bank records” for Fourth Amendment purposes. Id. at 442. The reasoning behind

that holding is straightforward. The Supreme Court held that documents containing account

information are “business records of” banks, not “private papers” of the account holder, who

“voluntarily conveyed” the account information to the bank and bank employees. Id. at 441-442.

Moreover, the account holder “takes the risk” that “the information will be conveyed” by the bank “to

the Government.” Id. at 443. As a result, there can be no legitimate expectation that the information

will not be disclosed to the government. See also Smith v. Maryland, 442 U.S. 735, 743-44 (1979) (finding

“no legitimate expectation of privacy in information” voluntarily turned over “to third parties”). And the

Ninth Circuit has repeatedly recognized, and applied, this holding in Miller. See, e.g., United States v.

Golden Valley Elec. Ass’n, 689 F.3d 1108, 1116 (9th Cir. 2012); Mangum v. Action Collection Serv., Inc., 575

F.3d 935, 942-43 (9th Cir. 2009); In re Grand Jury Proceedings, 40 F.3d 959, 962 (9th Cir. 1994).

Miller applies here. Coinbase users, including John Does 1, 2 and 3, voluntarily allowed Coinbase to

know the information at issue — including their identities and transaction information — in the course

of opening accounts and conducting transactions using their accounts. Coinbase users accordingly

have no expectation of privacy in the information and no legally protected right to prevent its

transmission to the IRS. John Does 1, 2 and 3 do not have a unique perspective to offer this Court.

Their motions to intervene should therefore be denied.

B. John Does 1, 2 and 3 Should Not be Permitted to Permissively Intervene in this Enforcement Proceeding.

Rule 24(b) allows for permissive intervention; however, John Does 1, 2 and 3 fail here too. As they

acknowledge, in order to be permitted to intervene here they must by timely motion, establish an

independent ground for jurisdiction and a common question of law and fact between their claims and

the main action. See Freedom from Religion Found., Inc. v. Geithner, 644 F.3d 836, 841 (9th Cir. 2011) ;

Docket No. 10 at 11:26-13:3; Docket No. 19 at 10:4-15. In addition, Fed. R. Civ. P. 24(b)(3) requires that

the Court “consider whether the intervention will unduly delay or prejudice the adjudication of the

original parties’ rights.” Again, the United States does not dispute that John Does 1, 2 and 3 have timely

applied to intervene in this proceeding. However, the United States has not waived its sovereign

immunity for a motion to quash a John Doe summons brought by a member of the John Doe class and

therefore John Does 1, 2 and 3 cannot establish the necessary subject matter jurisdiction to permit

their intervention.

John Doe 1 and John Doe 2 Have Failed to Identify Any Applicable Waiver of Sovereign Immunity.

John Doe 1 and John Doe 2 simply assert “there is no question that this Court has subject matter

jurisdiction as Movants are challenging the IRS Summons issued pursuant to this Court’s November 30,

2016 Order granting the federal government’s Petition filed pursuant to 26 U.S.C. § § 7402(a), 7609(f),

and 7609(h).” Docket No. 10 at 13:8-11. John Doe 3 is similarly conclusory in her inexplicable assertion

that subject matter jurisdiction exists because the United States cannot assert sovereign immunity

because she is seeking relief other than money damages. Docket No. 19 at 9:27-10:1. However, to

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establish subject matter jurisdiction in an action against the United States there must be (1) “statutory

authority granting subject matter jurisdiction,” and (2) “a waiver of sovereign immunity.” Alvarado v.

Table Mountain Rancheria, 509 F.3d 1008, 1016 (9th Cir. 2007). As a sovereign, the United States may

not be sued except in strict accordance with the terms of a specific and explicit waiver of sovereign

immunity granted by Congress, and the terms of the waiver define the court’s jurisdiction. See United

States v. Nordic Village, Inc., 503 U.S. 30, 33 (1992); United States v. Dalm, 494 U.S. 596, 608 (1990); United

States v. Sherwood, 312 U.S. 584, 586-587 (1941); Gilbert v. DaGrossa, 756 F.2d 1455, 1458 (9th Cir. 1985).

Waivers of sovereign immunity “cannot be implied, but must be unequivocally expressed,” and are

strictly construed in favor of the sovereign. Dunn & Black P.S. v. U.S., 492 F.3d 1084, 1088 (9th Cir. 2007).

Where the United States has not consented to suit, the court lacks jurisdiction over the subject matter

of the action and dismissal is required. See, e.g., id.