Coinbase lawsuit reaches U.S. Supreme Court as IRS fights for total crypto surveillance

The ongoing Coinbase lawsuit has exploded into the crypto industry’s most consequential legal battle after the U.S. government this week demanded Supreme Court approval for unlimited IRS access to exchange user data. In a 63-page brief that could reshape financial privacy, DOJ lawyers argued the Coinbase lawsuit must fail, claiming the IRS needs blanket authority to track crypto transactions without warrants.

The case, involving Bitcoin trader James Harper, may have far-reaching implications for digital privacy in the era of cryptocurrency surveillance.

The Coinbase lawsuit has its roots in a broader IRS investigation that began in 2016. Harper claims the IRS violated his Fourth Amendment rights by obtaining his trading data from Coinbase without a warrant.

But the government, in its May 30 filing, strongly disagreed, stating Harper “voluntarily” handed his data to Coinbase, and thus had no reasonable expectation of privacy.

Government pushes back in Coinbase lawsuit

In the official Supreme Court brief, Solicitor General D. John Sauer laid out the government’s case: “Harper’s financial records were lawfully obtained under a judicially approved John Doe summons. His claim lacks constitutional merit.”

The Coinbase lawsuit centers on the IRS’s response to widespread tax underreporting among crypto investors. With millions of users trading Bitcoin (BTC) and other assets on Coinbase, the IRS noted a significant mismatch between crypto trading activity and the number of tax filers reporting capital gains.

To close this gap, the IRS issued a “John Doe” summons — a legal tool used to compel companies like Coinbase to provide information about unnamed users meeting certain criteria. Harper, a high-volume Coinbase trader during the audit window, was among those identified.

Lower courts rejected Harper’s Coinbase lawsuit

Harper sued the IRS in federal court, claiming his personal data was seized unlawfully. But both the District Court and the First Circuit Court of Appeals sided with the IRS. Judges ruled that financial records held by Coinbase are legally considered “third-party business records,” not private documents.

As part of the Coinbase lawsuit, the U.S. government cited United States v. Miller, a Supreme Court case that ruled Americans have no constitutional protection over bank-held documents.

Sauer emphasized this precedent, adding that Coinbase’s own privacy policy clearly warns users their information may be shared with law enforcement.

“The Coinbase lawsuit is emblematic of broader tensions between digital finance and legacy legal frameworks,” said Jake Chervinsky, Chief Legal Officer at Variant Fund. “

Crypto investors are discovering that decentralization doesn’t always protect against traditional government scrutiny.”

Supreme Court decision could reshape crypto privacy

The Coinbase lawsuit is now at a critical juncture. If the Supreme Court takes the case, it could set a national precedent on the intersection of privacy, crypto custody, and government surveillance.

Harper’s legal team argues the Court must adapt older privacy rulings to the new realities of digital assets and exchanges. “We believe the Constitution protects individuals’ rights in the digital realm just as it does in the physical,” said Patrick Toomey, attorney with the ACLU.

However, if the Supreme Court declines to hear the case, the lower court’s decision — favoring the IRS — will stand.

Coinbase faces legal pressure on multiple fronts

Adding to the pressure, Coinbase disclosed a major data breach on May 15. Hackers bribed Indian-based customer support agents to access sensitive user data, including account balances and transaction histories. Approximately 1% of Coinbase’s monthly users were affected — among them Sequoia Capital’s Roelof Botha.

In the immediate aftermath, at least six lawsuits were filed against Coinbase, accusing it of negligence and failure to implement adequate security protocols. This fresh wave of legal action compounds the exchange’s troubles amid the high-profile Coinbase lawsuit already at the Supreme Court’s doorstep.

The Coinbase lawsuit involving James Harper has quickly evolved into a potential landmark case for crypto privacy rights. As the crypto industry matures, government oversight is becoming increasingly assertive — and the outcome of this legal battle may determine how much protection users really have when storing funds with centralized platforms.

For now, the ball is in the Supreme Court’s court. But regardless of the outcome, one thing is clear: the Coinbase lawsuit has reignited urgent conversations about privacy, digital rights, and the future of crypto regulation in the United States.