A federal court in the state of California has confirmed the validity of the United States Internal Revenue Service’s (IRS) request to receive data from the crypto exchange, Bitstamp. The request was made in regards to an individual tax reporting case.



The court filing on November 25th showed that the court had found that five out of the six arguments presented against the IRS “lack merit”. Although they have agreed on one point that the tax agency’s request was indeed overbroad, as the Petitioner claimed.



The filing is in relation to the court proceedings which were initiated by William Zietzke.

Zeitzke has argued that the IRS is overstepping their boundaries through their manner of conducting an audit on his tax returns.



The petitioner claims this is a case of privacy infringement, as well as ‘bad faith’ and irrelevance.

As the filing outlines, Zietke had initially self-informed the IRS of his own mistake within his tax return. The mistake was supposedly overestimating the long-term capital gains he made for the year 2016.



When he began seeking a refund from the IRS to correct and compensate for his error, the agency set out to investigate Zietke’s case. Doing so required him to provide extensive data on his entire history of Bitcoin holdings and transactions.



The IRS claimed that Zietke failed to inform the IRS of his use of crypto exchange Bitstamp, which prompted the agency to summon data about his holdings from the exchange. As well as public keys and blockchain addresses connected to his transactions.



The court outlined that Zietzke questioned the IRS’ actions on six grounds; the first being that it issued the summons to Bitstamp “in bad faith”; secondly, that the IRS is seeking data that is irrelevant to its audit of the Petitioner’s reporting; thirdly, that it already has possession of the requested information from Bitstamp.



Zietzke’s three main arguments make the claim that the IRS allegedly made administrative mistakes and moreover has invoked a violation on his reasonable expectation of privacy in Bitstamp’s records. He has also made the claims that the U.S. government cannot guarantee the security of any records it receives from the crypto exchange.



The court conceded only one out of the six arguments



The California court has conceded only one of Zietke’s arguments, stating that he is indeed “correct that the summons is overbroad because it seeks both relevant and irrelevant material.”



However the court also refuted all other arguments against the IRS, finding that the validity of the IRS’ summons fulfills legal procedures and supports the role of the agency in enforcing the tax consequences of crypto transactions.



Zietke has made a similar attempt in the past to remove an IRS summons which had been issued to the cryptocurrency exchange Coinbase. Although this too was highly contested by the IRS.

