See Quartz: The infrastructure bill makes crypto tax-reporting failures a felony by Scott Nover. Cryptocurrency is added in to 26 U.S.C. § 6050i on cash or cash equivalent transactions. The writer poses a Fourth Amendment question:
The requirements could violate the Fourth Amendment’s protections against unreasonable searches and seizures, he added. Banks are subject to reporting requirements about large transactions under the third-party doctrine, a legal principle that says people who give personal information to third parties in transactions have no reasonable expectation of privacy. But in the case of crypto transactions, by design there typically is no third party present.
But is it a Fourth Amendment problem at all under existing law? Not really.
§ 6060i was first passed in 1984. There has been only occasional Fourth Amendment challenges to 6050i, and they’ve lost. See, e.g., United States v. Goldberger & Dubin, P.C., 935 F.2d 501, 503 (2d Cir. 1991) where the argument got short shirt under Miller:
Appellants’ allegations of unconstitutionality merit only brief discussion. Their contentions relative to the Fourth and Fifth Amendments have been rejected consistently in cases under the Bank Secrecy Act by both the Supreme Court and this court. See United States v. Miller, 425 U.S. 435, 444, 96 S.Ct. 1619, 1624, 48 L.Ed.2d 71 (1976); California Bankers, supra, 416 U.S. at 44–75, 94 S.Ct. at 1509–24; … The reporting requirements of the 1984 Tax Reform Act, like those of the Bank Secrecy Act, target transactions without regard to the purposes underlying them and do not require reporting of information that necessarily would be criminal. See United States v. Mickens, supra, 926 F.2d at 1331.
Lawyers repeatedly lost on Fifth and Sixth Amendment and attorney-client privilege grounds in the early 90s and gave up the fight.
But, still, how does the third party doctrine not apply to a crypto transaction? Or does it even matter? Receiving cash in the normal course of a trade or business is a reportable transaction, and it has tax consequences. Consider a hypothetical: Client C pays lawyer L $25,000 cash as a fee in a criminal case, or any case. That transaction must be reported under § 6050i. There are only two parties to that transaction: C and L. Change it to crypto: the same client C pays lawyer L $25,000 in crytocurrency for a second installment on the legal fees. How is that any different? What adds the third party doctrine is the crypto computer which is the third party? Is it just an unregulated digital bank? The digital records may be harder to find, but they exist somewhere. If they are found and produced in court, they will incriminate.
And, all bank records are digital and affect interstate commerce today. My last wire fraud case underscored that. After the first check was deposited, everything else happened digitally.
But, is cypto different? There certainly might be a subjective reasonable expectation of privacy in a supposedly “secret” transaction, but isn’t a cash transaction between two people secret, too?
And, as stated before, a cash or crypto transaction is income to the business that affects its bottom line. Unless one is criminally avoiding taxes, it shall be reported on 1040 schedule C. The total crypto income is reported on the 1040, the payor is reported on FinCEN form 8300 within 14 days of the transaction.
Finally, a lawyer’s failure to file currency transaction report is a felony and an ethics violation. Even if you don’t go to jail, suspension or disbarment is likely. Professional Responsibility in Criminal Defense Practice § 8:41 (3d ed. 2005) (available on Westlaw).
I’m not banking my ticket on the Fourth Amendment protecting me. Moreover, the exclusionary rule doesn’t apply in lawyer discipline proceedings.
Update: Liberty Nation News: Infrastructure Bill Could Crush Crypto, if the 4A Doesn’t Stop It by Keelin Ferris (“Is this bye-bye Bitcoin, or can the Constitution come to the rescue?” Not anytime soon; not with this Supreme Court.)
Disclaimer: I know nothing of how crypto really works, so educate me if I’m wrong. What I’ve seen so far doesn’t provide any Fourth Amendment protection. Congress has to act, and it won’t.