Excellent Article on IRS CI Special Agent and Cryptocurrency (10/2/24)

I post today on an excellent article—Geraldine Brooks, The Cyber Sleuth (WAPO 10/1/24), here. This is one article in a WAPO series on “Who is Government?” where seven writers are said to “go in search of the essential public servant.” The articles in the series with author of each article are:

•  The Canary: Michael Lewis on the Department of Labor
• The Sentinel: Casey Cep on the Department of Veterans Affairs
• The Searchers: Dave Eggers on NASA’s Jet Propulsion Lab
• The Number: John Lanchester on the Bureau of Labor Statistics
• The Cyber Sleuth: Geraldine Brooks on the Internal Revenue Service
• The Equalizer: Sarah Vowell on the National Archives
• The Rookie: W. Kamau Bell on the Department of Justice

Each article in the series (so far) is outstanding. It is appropriate that Michael Lewis starts with the first installment because of his book, The Fifth Risk, which has been described as “a love letter to federal workers -- and a dig at Trump’s ‘willful ignorance’.” See WAPO book review here. Lewis tells a great story of the bureaucracy—the deep state, if you will—and how much the bureaucrats do for the country, keeping the country on an even keel in turbulent times (particularly the first (and hopefully the only) Trump administration where chaos reigned as Trump haphazardly filled the ranks of political appointees to the agencies).

The Cyber Sleuth installment deals with Jarod Koopman, an IRS “Cyber Sleuth.” Koopman is an example of IRS employees and government employees generally who bring dedication and unique skill to the mission of the IRS, an agency that Congress chronically underfunds seemingly to hamper the IRS’s ability to do the tasks Congress assigned it to do. The article says:

Until last year, the staff who work inside had watched their budget get cut for a decade. Their staffing numbers had reached lows not seen since the 1970s, even as the U.S. population swelled and the quantity of tax returns soared. There was no money to update failing technology, or even the software that ran it. The result was a pileup of paper returns that colonized corridors and cafeterias, and an American public vexed by poor service.

That, of course, was the goal: anti-tax activist Grover Norquist’s famous shrink-it-till-you-can-sink-it strategy. So the civil servants who had been valiantly struggling to serve more people with fewer resources found themselves unappreciated — even despised.

And perhaps most despised are the 3 percent of IRS personnel involved in criminal investigation, who have become piñatas for the agency’s critics. Fox News’s Brian Kilmeade characterized agents such as Koopman as dangerous threats who could “hunt down and kill middle-class taxpayers,” while Rep. Lauren Boebert (R-Colo.) accused them of “committing armed robbery on Americans.” Republicans even attached a rider to a spending bill limiting the number of bullets the IRS can buy. “A weapon is rarely discharged by one of our agents,” says a frustrated Werfel. “But you can’t send an agent into a criminal enterprise unarmed, so they have to train, and there’s a minimum inventory required for that.” 

First Circuit Holds that JDS for Crypto Records Is Not Entitled to Pre-Enforcement Review (10/1/24)

In Harper v. Werfel, __ 4th ___ (1st Cir. 2024), CA1 here and GS here, the Court rejected Harper’s claim that the documents gathered by the IRS John Doe summons (“JDS”) to Coinbase should be eliminated from its files because of alleged deficiencies in the JDS process.

I blogged on a prior appeal where the First Circuit held that the Anti-Injunction Act (“AIA”), § 7421(a), did not apply to prevent the pre-enforcement suit under the Administrative Procedure Act (“APA”) because the activity in question was “information gathering” rather than tax collecting and assessing. First Circuit Holds that Target of JDS May Bring Challenge to JDS Prior to Tax Enforcement Against Target (Federal Tax Procedure Blog 11/9/22), here. The prior appeal was styled Harper v. Rettig, 46 F.4th 1 (1st Cir. 2022), CA1 here and GS here. (Rettig was the former IRS Commissioner; Werfel is the current IRS Commissioner.) The Solicitor General did not authorize petition for certiorari in Harper v. Rettig, so the case was remanded to the district court for further consideration consistent with Harper v. Rettig. Harper v. Rettig thus appeared to be a big win in the line of cases allowing pre-enforcement review beginning with CIC Services, LLC v. IRS, 593 U.S. 209 (2021).

On remand, the district court reached the same result—dismissal—on different grounds as follows:

• The Court rejected Harper’s Fourth and Fifth Amendment claims on the basis that, by becoming a Coinbase customer, Harper (i) had no reasonable expectation of privacy or protectable interest with respect to Coinbase’s records (not his records) (the third party doctrine) and (ii) the JDS did not deprive Harper of due process. (Slip Op. 11-35  In the latter holding, the Court cited prominently S.E.C. v. Jerry T. O'Brien, Inc., 467 U.S. 735 (1984) which held “the Due Process Clause of the Fifth Amendment . . . is [not] offended when a federal administrative agency, without notifying a person under investigation, uses its subpoena power to gather evidence adverse to him.” (Slip Op. 29-30.) Readers should recall that the JDS is required in the first instance because the IRS does not know the identity of the account holder, so any requirement of due process of advance notice would judicially eliminate the JDS.