A federal court in California has dismissed a lawsuit filed by a Coinbase user seeking to block an Internal Revenue Service (IRS) summons for their cryptocurrency transaction records. The U.S. District Court for the Northern District of California ruled that the petitioner, Roger Metz, failed to comply with procedural requirements, specifically Federal Rule of Civil Procedure 4(i), which mandates that plaintiffs serve the United States government within 90 days of filing a lawsuit.
The court found that while Metz had served the U.S. Attorney's Office for the Northern District of California and the IRS, he failed to notify the U.S. Attorney General in Washington, D.C.. Judge Araceli Martínez-Olguín, presiding over the case, stated in the ruling that Metz offered "no explanation for his failure to serve the United States within 90 days." Consequently, the case was dismissed without prejudice on procedural grounds, meaning Metz could refile the petition later.
The IRS summons was issued as part of an audit of Metz's 2022 federal tax return, focusing on the accuracy of his cryptocurrency transaction reporting. Metz had argued that the summons violated his privacy rights and was overly broad, noting that he had already filed an amended return and paid additional taxes. The dismissal reinforces the IRS's broad authority to obtain customer records from cryptocurrency exchanges like Coinbase during legitimate tax examinations.
This case is part of a broader trend of increased IRS scrutiny on cryptocurrency taxation. Key milestones include the 2016 "John Doe" summons to Coinbase, the addition of a virtual currency question to Form 1040 in 2019, and the 2021 Infrastructure Investment and Jobs Act, which expanded reporting requirements for crypto brokers. The ruling follows a similar 2023 case where the court sided with the IRS against another Coinbase user, James Harper, who challenged a summons on Fourth Amendment grounds.
The decision underscores the importance for cryptocurrency investors to maintain meticulous transaction records and adhere to complex tax rules, including cost basis tracking and reporting of staking or mining income. It also highlights that procedural compliance is as critical as substantive arguments when challenging government actions.
