In partially reversing a lower court’s dismissal of multiple constitutional challenges to the amended Code section requiring the disclosure of certain information on digital asset transactions, the 6th U.S. Circuit Court of Appeals found that some claims are ripe for review. (Carman, (CA 6, 8/9/2024) 134 AFTR 2d 2024-5087)
According to the 6th Circuit’s August 9 opinion authored by Judge Karen Nelson Moore in Carman v. Yellen (No. 23-5662, 2024 WL 3734429), the U.S. District Court for the Eastern District of Kentucky erred in completely dismissing two cryptocurrency transactors and a crypto organization’s complaint seeking declaratory and injunctive relief.
Petitioners Dan Carman, Quiet Industries Owner Raymond Walsh, and nonprofit crypto advocate Coin Center contested Code Sec. 6050I as amended by the Infrastructure Investment and Jobs Act of (P.L. 117-58), which provides that anyone engaged in a trade or business who receives $10,000 in cash must file a Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business. The 2021 bill added digital assets to the definition of cash, which includes cryptocurrencies.
In total, the petitioners brought five claims for relief to the lower Kentucky court, arguing the new Section 6050I:
- violates of the Fourth Amendment because of an unreasonable search
- violates the First Amendment right to associational privacy
- violates the Fifth Amendment right due process since the amendment is vague
- exceeds Congress’ enumerated powers
- violates the Fifth Amendment right against self-incrimination.
For each claim, petitioners asked the court to declare the amended section facially unconstitutional and for it to be enjoined. Carman and Walsh both deal in Bitcoin and expect to each receive payments exceeding $10,000 and thus are subject to the new reporting requirement. Coin Center claimed it would also need to report due to contributions and sponsorship sales from its advocacy work and cited increased compliance costs.
But the district court disagreed that any costs or loss of revenue in connection with complying with the reporting requirement qualify as a justiciable injury. Finding the plaintiffs lacked standing and their claims were not ripe, the court on July 19, 2023, granted the government’s motion to dismiss for lack of subject-matter jurisdiction. (132 AFTR 2d 2023-5240, 2023 WL 4636883)
In addition, the court pointed out that the amended Section 6050I was not in effect at the time since Treasury and the IRS were still working through the rulemaking process to implement the law. Thus, the complaints were “premature,” the lower court said. “While Plaintiffs may accrue compliance costs before the amended §6050I is effective, those costs are merely speculative at this point, given the Department of Treasury’s pending regulation that may alter the compliance requirements as envisioned by Plaintiffs.”
However, Moore found that the petitioners’ enumerated-powers claim is “clearly ripe” because the “exceedingly simple, pure legal issue” of whether Congress exceeded its powers became ripe “the moment” the law passed. To Moore, it does not necessarily matter that “we do not know the precise contours of how §6050I will be implemented, what transactions it will actually cover, and how many of plaintiffs’ transactions will be at issue.” The legal question if the law is “not necessary or proper” for Congress to carry out its taxing power can be resolved, Moore wrote.
The circuit judge also determined the First and Fourth Amendment claims are also ripe despite not being as cut and dry as the enumerated-powers claim. “Because there is no question that at least some of the plaintiffs will need to make §6050I reports, it is appropriate for a court to consider whether the mere disclosure of covered transactions implicates the First Amendment and passes the requisite level of constitutional scrutiny if so.”
The case was reversed in part and remanded back to the district court.
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