An anonymous customer of Coinbase, involved in a months-long battle between the exchange and the Internal Revenue Service, has been given the right to intervene in the case. All the while the same Federal Judge has also slammed the IRS for its broad demands of customer records.

“John Doe 4” as he is known in the court documents will now have the rights to challenge the IRS’s power to summon customer information for millions of users of Coinbase.

Long road

The IRS has been trying to probe Coinbase for its customer information regarding Bitcoin transactions and taxable gains made from the digital currency, for over six months.

In December last year, a class-action was filed to stop the probe. This came after a Federal court approved the collection of the sensitive data.

The IRS’s move into enforcing taxation on Bitcoin gains saw some pretty poor returns as of March of this year, just over 800 people declared earnings from Bitcoin’s astronomical rise in value.

With the case ongoing, it has attracted a huge amount of negative press which has pressured the government agency to rethink its strategy for reaching this sensitive information. The IRS announced it would narrow its scope, and that it would only be after people who trade over $20,000.

Body blow

In this latest ruling, which is another step backward for the IRS, US Magistrate Judge Jacqueline Corley said in her stern 12-page order that the IRS’s attempts to block ‘John Doe 4’ from participating in the case is ridiculous.

The Coinbase user, who has agreed to identify himself later on in the case, has his financial records at stake and excluding him from proceedings “makes no sense.”

Corley noted that there were indeed grounds in the legal system that allows for persons to intervene to challenge the enforcement of an IRS summons - in fact, there were two in Doe’s case.

Unprecedented scope

The fact that ‘John Doe 4’ is allowed to contest this case is one aspect of the ongoing saga, but the recurring theme that Corley also strongly agrees upon is that the IRS has gone too far in its demands for so many private records

She said in her judgment:

“Under that reasoning, the IRS could request bank records for every United States customer from every bank branch in the United States because it is well known that tax liabilities, in general, are under reported and such records might turn up tax liabilities. It is thus no surprise that the IRS cannot cite a single case that supports such broad discretion to obtain the records of every bank-account holding American.”