The IRS will be able to proceed with a summons on the cryptocurrency exchange Bitstamp—despite a taxpayer’s attempt to intervene—if it sufficiently narrows its request, a federal judge said.
“The summons requests information that is irrelevant to the IRS’s stated purpose of auditing Petitioner’s 2016 amended return,” Judge John C. Coughenour of the U.S. District Court for the Western District of Washington said in an order. “The summons is therefore overbroad.”
The judge’s stance is reminiscent of high-profile case involving an IRS John Doe summons on Coinbase Inc., one of the largest cryptocurrency exchanges. A court in 2017 approved the summons but forced the government to narrow its request.
The new case stems from the IRS’s decision in June 2018 to examine the 2016 return of taxpayer William A. Zietzke after he filed an amended return seeking a $15,475 refund for taxes paid on previously reported gains on his cryptocurrency transactions. During the audit the IRS learned that Zietzke had used the exchange, Bitstamp, to conduct at least one Bitcoin transaction in 2016 but hadn’t disclosed that transaction to the agency.
The IRS served a summons on Bitstamp seeking information on Zietzke’s holdings, which he tried to block in a June 2019 petition. The government responded with a motion to enforce the summons and deny Zietzke’s petition to quash it.
Bitstamp didn’t immediately return a request for comment.
The IRS said that federal law prohibits it from discussing specific taxpayers.
The government must file a proposed amended summons within 14 days of the court’s Nov. 25 order, modifying several of its requests to demand information only relating to Zietzke’s 2016 transactions, Coughenour said in his ruling.
“Those requests may ask for information prior to 2016 only to the extent that the information is relevant to determining the tax implications of transactions in 2016,” the judge said.
Joseph P. Wilson, the founder of Wilson Tax Law Group APLC and Zietzke’s attorney, said early on he had asked the IRS to compromise and scale back the summons outside of court.
Wilson said he hasn’t read the judge’s entire decision and can’t speak to whether the court is asking the government to narrow the summons in the way he had originally requested.
“But the bottom line is if they had just at the beginning restricted the summons, we wouldn’t have had to go through this entire process,” he said Nov. 26.
If Zietzke and his attorneys want to oppose the government’s amended summons, they must do so within seven days of the government filing the narrowed summons, Coughenour said.
The Justice Department’s tax division, which is representing the IRS in the case, declined to comment.
The case is William A. Zietzke v. U.S., W.D. Wash., No. 2:19-cv-01234, 11/25/19.