Washington based think tank Coin Center has brought a lawsuit against, among others, the United Sates Treasury Department and Internal Revenue Service regarding a reporting requirement included in last year’s major infrastructure legislation. We wrote at that time about the criticism of the bill with respect to the reporting burdens that were going to be placed on “brokers” of “digital asset” transfers. The Coin Center lawsuit focuses on the so-called Section 6050I reporting requirement, which requires individuals and businesses who receive $10,000 or more in cryptocurrency to report detailed information to the government.
The complaint alleges that the following would have to happen for transactions involving digital assets:
(1) The sender would have to reveal to the receiver his Social Security number, name, and address and the receiver would then have to enter the sender’s personal identifying information on a report transmitted to the government.
(2) The receiver would have to reveal to the government his own Social Security number, his name, and his address.
(3) The receiver would have to reveal the amount of digital assets that he received, the date of the transaction, and the “nature” of the transaction.
(4) The receiver would have to reveal “any other information required by Form 8300,” which includes the Social Security number and identifying information of any person on whose behalf the sender acted.
(5) The receiver would also have to take steps to “verify the identity” of the sender. He would have to do so by examining the sender’s passport, driver’s license, or similar documentation.
(6) The receiver would have to sign the report under penalty of perjury and file it within 15 days of the transaction.
(7) The receiver would also have to send a yearly written statement to each sender he reported to the IRS with the receiver’s name and address along with the details of all of their covered transactions.
(8) The receiver would have to maintain in his possession a copy of every report made under §6050I for five years.
To make its point about how this requirement would expand the surveilling power of the government, the complaint states that, from one Section 6501I report, the government could discover that a person donated to a local mosque in 2016, paid for a son’s sobriety treatment in 2018, contributed to an unpopular political cause in 2020, and hired a marriage counselor in 2022.
Although the requirement applies only to transactions of $10,000 or more, the complaint alleges that each transaction would nevertheless have to be tracked because the receiver would have to determine if transactions were related to past ones, to aggregate to $10,000. The requirement that a sender provide a driver’s license, passport, or similar form of identification would be nearly impossible to comply with in many cryptocurrency transactions because they occur across vast distances and can involve an indeterminate number of persons.
The complaint sets forth two main claims. The first claim is about privacy and the Fourth Amendment right to be secure from unreasonable searches and seizures. If the government wants citizens to report directly about themselves and the people with whom they transact, it should prove before a judge that it has reasonable suspicion warranting a search of people’s private papers.
The second claim concerns the first amendment. The Supreme Court has previously held that the government cannot force civil liberties groups to report lists of member and donors. The Section 6050I provision could require civil liberties groups to list and report supporter information and would enable the government to monitor an even wider range of expressive activity. The allegation is that this would substantially chill political association and is therefore unconstitutional.
The complaint seeks a declaration that the amended Section 6050I is facially unconstitutional and an injunction preventing the Defendants from enforcing the amended Section 6050I.