Government Opposes Coinbase Customers Intervening in IRS Summons Case

UNITED STATES OF AMERICA,
Petitioner,
v.
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
Fax: (202) 307-0054
E-mail: Jeremy.Hendon@usdoj.gov
Amy.T.Matchison@usdoj.gov
Western.Taxcivil@usdoj.gov

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: Colin.Sampson@usdoj.gov

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

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)

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)

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).¹

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 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 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 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.

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:

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:

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, 2004) (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.

1. 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.”² 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 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. 1983) (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 may have narrowed its investigation does not amount to a protectable interest sufficient to justify intervention as a matter of right.

2. 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.

3. 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.³ 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 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)⁴; 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.

1. 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 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.

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). John Does 1, 2 and 3 are not noticees under the statute.

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.” Ritchie, 15 F.3d at 597 (6th Cir. 1994). In the case of a John Doe summons, Congress has decided that the mechanism for challenge is the review of the district court prior to the issuance of the summons. I.R.C. § 7609(f). If this Court were to allow the Does’ intervention here, it would effectively circumvent Congress’ decision that the proper authority to review and restrict the IRS’s ability to investigate by John Doe summons is vested in the courts alone.

Separately, John Does 1, 2 and 3 need to establish Article III standing in order to pursue their cause of action against the government. See Perry v. Schwarzenegger, 630 F.3d 898, 905-06 (9th Cir. 2011) (holding that when exercising its “broad discretion” to allow permissive intervention, a court may consider the proposed intervenor’s “standing to raise relevant legal issues”). This they cannot do because absent a protectable interest as previously discussed, the Does do not have a legally redressable injury. And, absent a legally redressable injury, the Court lacks jurisdiction to entertain their arguments. As the Supreme Court explained in Vermont Agency of Natural Resources v. United States, 529 U.S. 765, 771 (2000), in order to have Article III standing to bring suit in a federal court, a party must demonstrate three things: (1) “injury in fact,” meaning “a harm that is both ‘concrete’ and ‘actual or imminent, not conjectural or hypothetical,”; (2) “causation — a ‘fairly . . . trace[able] connection between the alleged injury in fact and the alleged conduct”; and (3) “redressability.” “These requirements together constitute the ‘irreducible constitutional minimum’ of standing.” Id. The burden to prove each element of standing is on the person asserting standing. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992).

John Does 1, 2 and 3 do not have an injury the law will recognize if their identities and account records are given to the IRS. The law does not recognize an IRS examination as an injury, nor does it recognize having to pay additional taxes due as an injury. Since John Does 1, 2 and 3 cannot establish an injury that the law will recognize, they cannot establish Article III standing.⁵

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

John Doe 1 and John Doe 2 assert, without much elaboration, that because they seek to quash the summons they should be permitted to intervene, under a heading that their defenses are relevant to the validity of the Petition. Docket No. 10 at 13:12-18. In claimed support for this assertion, they cite to United States v. Sidley Austin Brown & Wood LLP, No. 03 C 9355, 2004 WL 816448 (N.D. Ill. April 15, 2004), in which a court granted permission for a limited intervention in a John Doe summons “reasoning that ‘a dispute regarding the sufficiency of the description of the material to be produced is an appropriate basis for a challenge to a summons in an enforcement proceeding.’” Docket No. 10 at 13:14-18. John Doe 1 and John Doe 2 also assert that the IRS will suffer no prejudice and there will no undue delay if they are permitted to intervene. Docket No. 10 at 13-14. Sidley is instructive on both of these arguments.

In Sidley, the government sought enforcement of a John Doe summons served upon Sidley Austin Brown & Wood to obtain the names of former clients of the firm. 2004 WL 816448 at *1. A group of former clients moved to intervene, arguing that their identities were protected from disclosure by the attorney-client privilege and therefore they were entitled to intervene as a matter of right. The court held that the Does did not have a right to intervene under Fed. R. Civ. P. 24(a)(2), finding that the Does identities were not privileged and therefore they did not have a protectable interest at stake in the enforcement action. 2004 WL 816448 at *8. The court did, however, permit the Does to intervene on one limited area for inquiry — the sufficiency of the description of the material to be produced — reasoning it would not be challenged by the summoned party, would not require discovery or an evidentiary hearing, would not require that any factual determinations be made, and it could be accomplished without undue delay. 2004 WL 816448 at *10.

None of the same can be said for the sweeping relief sought by John Does 1, 2 and 3 if permitted to intervene here. The Does have made plain their demand for an evidentiary hearing and discovery into the good faith of the IRS. Docket No. 10 at 24-25; Docket No. 19 at 14-15. Although the Does title the discovery they seek as “limited,” John Doe 1 and John Doe 2 identify seven topics upon which they would conduct discovery and have an evidentiary hearing. The seven topics include what they charge is the IRS’s failure to clarify its virtual currency guidance, the IRS’s factual showing and basis for the John Doe summons,⁶ IRS resources that may be used to analyze the summoned data, IRS research programs, and other unidentified IRS improper uses of power. Docket No. 10 at 24-25. For her part, John Doe 3 would like an opportunity to review the IRS’s use of artificial intelligence and the related “source code.” Docket No. 19 at 15:1-5. Discovery into this range of topics hardly qualifies as limited, would require multiple witnesses, potentially voluminous document production, and would certainly unduly delay what are supposed to be summary proceedings.

IV. CONCLUSION

For the foregoing reasons, the Motions to Intervene filed by John Does 1 and 2, and John Doe 3, should be denied.

Dated this 5th day of June, 2017.

DAVID A. HUBBERT
Acting Assistant Attorney General

JEREMY N. HENDON MY MATCHISON
Trial Attorneys, Tax Division
U.S. Department of Justice

BRIAN J. STRETCH
United States Attorney
Northern District of California

COLIN C. SAMPSON
Assistant United States Attorney, Tax Division
Attorneys for United States of America