6th Circuit Remands Case for Consideration of Certain Constitutional Claims Against § 6050I(d)(3) Addition to Include Digital Assets in CTR Reportable Cash (8/21/24; 8/22/24)

In Carman v. Yellen, ___ F.4th ___, 2024 U.S. App. LEXIS 20033 (6th Cir.), CA6 here and GS here, the plaintiffs made a number of constitutional claims against the 2021 addition to the definition of cash reportable on currency transaction reports under § 6050I. The addition is in § 6050I(d)(3) to include digital assets in the definition of reportable “cash.” The plaintiffs were particularly concerned about cryptocurrency. The constitutional claims as set forth by the Court are (Slip Op. 9-11, cleaned up for readability principally by omitting citations to the record): 

          Plaintiffs launch five distinct constitutional attacks on the amended § 6050I, including a Fourth Amendment claim, a First Amendment Claim, a Fifth Amendment vagueness claim, an enumerated-powers claim, and a Fifth Amendment self-incrimination claim. For each of these, plaintiffs bring facial challenges, meaning they contend all (or almost all) applications of the law are unconstitutional. That creates some confusion, however, because their legal theories, as we note in our analysis, sound in as-applied challenges by contending that specific applications of § 6050I or hypothetical future events tied to the statute would create constitutional infirmities. Yet, for all claims, plaintiffs’ requested relief is the same: a declaration that § 6050I is facially unconstitutional and that enforcement of the law be enjoined.

           Plaintiffs’ first claim is that the amended § 6050I violates the Fourth Amendment. Specifically, plaintiffs claim that the amended law compels senders and receivers of cryptocurrency in reported transactions to “share their personal identifying information in conjunction with the details of their covered transactions, and thereby reveal sensitive details about their personal affairs.” Because of the private nature of cryptocurrency transactions, plaintiffs contend that they have a reasonable expectation of privacy and that the amended law will invade that expectation of privacy, all without the need for a warrant. Plaintiffs additionally claim that the government will conduct searches by violating their property rights.

          Plaintiffs’ First Amendment claim turns on freedom of association. Plaintiffs aver that the reporting requirements will “chill protected associational activities” by requiring those who wish to remain anonymous to be subject to disclosures and by potentially exposing to retaliatory [*10] actions by the government those who donate to expressive associations. Because the reporting mandate “will require parties to reveal expressive associations to the government,” it will “chill and is already chilling protected associational activities in at least three ways.” These include allowing the “government to ascertain the unrelated expressive associations of parties to all covered transactions” through “public-ledger analysis,”; increasing the likelihood that malicious actors like hackers will obtain information and be capable of linking transactions to individuals, and “directly mandat[ing] the reporting of expressive associations,” Plaintiffs allege that the law is not narrowly tailored and is thus unconstitutional.

           Plaintiffs’ first Fifth Amendment challenge to the amended § 6050I is a vagueness challenge. In essence, plaintiffs argue that the law’s requirements, which were developed in the context of face-to-face physical-cash transactions, do not map onto cryptocurrency. Plaintiffs claim that they will face substantial confusion and compliance issues with understanding how several of the law’s requirements and definitions comport with cryptocurrency transactions. Given this confusion, plaintiffs allege that § 6050I is unconstitutionally vague.

           Plaintiffs also claim that Congress has exceeded its enumerated powers by promulgating the amended § 6050I. Although Congress may pass laws that are “necessary and proper” to aid in executing its powers, plaintiffs argue that the amended § 6050I is a disproportionate “surveillance” regime that is not necessary to carrying out Congress’s taxing powers. Plaintiffs likewise contend that the law cannot be justified under Congress’s power to regulate interstate commerce.

[*11]

          Finally, plaintiffs claim that the amended § 6050I violates the Fifth Amendment because it infringes their right against self-incrimination. Plaintiffs acknowledge that the Supreme Court has rejected the position that the Fifth Amendment protects against production of any incriminating evidence, as opposed to testimony. Nonetheless, plaintiffs have brought this claim “to preserve it for further review.”

On motion to dismiss on the pleadings, the district court dismissed the action. The Court of Appeals (Slip Op. 30) affirmed in part and reversed in part, remanding “for proceedings consistent with this opinion.” So, there will be something for the district court to do once it weeds through the opinion to understand its charge on remand. I will not address here what the opinion requires the district court to do on remand or whether the plaintiffs have any real prospect for any relief. (I will say that while dismissal on the pleadings may have not been appropriate for all of plaintiffs’ claims, as the Court of Appeals summarizes the claims, I don’t see any material prospect of plaintiffs succeeding.)

Added 8/22/24 10:15 am: Thomson Reuters has this article with a short summary: Tim Shaw, Circuit Court Revives Crypto Reporting Legal Challenge (ThomsonReuters 8/19/24), here.

Since the decision is so preliminary, I probably would not have reported on it at all, except that it led me to a glitch in the LII Code offerings that I usually use for reading Code provisions. (For sources for the Code, see the page to the right titled "On the Internal Revenue Code (Title 26), the U.S. Codes, and Statutes," here. As §6050I(d)(3) appears on the LII site (here):

(d) Cash includes foreign currency and certain monetary instruments

For purposes of this section, the term “cash” includes—
(1) foreign currency, and
(2) to the extent provided in regulations prescribed by the Secretary, any monetary instrument (whether or not in bearer form) with a face amount of not more than $10,000.

Paragraph (2) shall not apply to any check drawn on the account of the writer in a financial institution referred to in subsection (c)(1)(B).

The addition of subsection (d)(3) only appears in the Notes to the LII version.

As offered on the authoritative Office of Law Revision Counsel compilation here, §6050I(d)(3) is:

(d) Cash includes foreign currency and certain monetary instruments

For purposes of this section, the term "cash" includes-
(1) foreign currency,
(2) to the extent provided in regulations prescribed by the Secretary, any monetary instrument (whether or not in bearer form) with a face amount of not more than $10,000, and
(3) any digital asset (as defined in section 6045(g)(3)(D)).

Paragraph (2) shall not apply to any check drawn on the account of the writer in a financial institution referred to in subsection (c)(1)(B).

The Office of Law Revision Counsel has the same note.

So this is just a caveat to be careful about the use of third party compilations.

I today sent a note to LII to suggest that they correct the provision.