Carman v. Yellen

112 F.4th 386

Dan CARMAN; Coin Center; Raymond Walsh; Quiet Industries Corp., Plaintiffs-Appellants, v. Janet YELLEN, in her official capacity as Secretary of the Treasury; United States Department of the Treasury; Charles Paul Rettig, in his official capacity as Commissioner of the Internal Revenue Service; Internal Revenue Service; Merrick B. Garland, Attorney General; United States of America, Defendants-Appellees.

No. 23-5662

United States Court of Appeals, Sixth Circuit

Argued: May 7, 2024

Decided and Filed: August 9, 2024

Appeal from the United States District Court for the Eastern District of Kentucky at Lexington. No. 5:22-cv-00149—Karen K. Caldwell, District Judge

ARGUED: Jeffrey S. Hetzel, CONSOVOY McCARTHY, PLLC, Arlington, Virginia, for Appellants. Geoffrey J. Klimas, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellees. ON BRIEF: Jeffrey S. Hetzel, Cameron T. Norris, CONSOVOY McCARTHY, PLLC, Arlington, Virginia, for Appellants. Geoffrey J. Klimas, Francesca Ugolini, Ellen Page DelSole, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellees.

Before: MOORE, NALBANDIAN, and BLOOMEKATZ, Circuit Judges.

OPINION

KAREN NELSON MOORE, Circuit Judge.

Plaintiffs Dan Carman, Coin Center, Raymond Walsh, and Quiet Industries Corp. ("plaintiffs") regularly transact in cryptocurrency for both personal and business matters. They enjoy the privacy and anonymity that cryptocurrency transactions provide. So when Congress passed amendments to 26 U.S.C. § 6050I, a law that now requires reporting of certain cryptocurrency transactions to the federal government, plaintiffs brought this lawsuit against the United States and the agencies in charge of implementing and enforcing § 6050I.¹ The district court found that it was without jurisdiction to consider the merits of plaintiffs' constitutional challenges to the amended § 6050I, because plaintiffs' claims are either not ripe for adjudication or because the plaintiffs lack standing. Although the district court was correct that one of plaintiffs' claims is not ripe, several of plaintiffs' claims are justiciable today. Accordingly, we AFFIRM in part and REVERSE in part the district court's judgment, and REMAND for proceedings consistent with this opinion.

I. BACKGROUND

A. Amended 26 U.S.C. § 6050I

Title 26 U.S.C. § 6050I(a) requires "[a]ny person ... who is engaged in a trade or business, and ... who, in the course of such trade or business, receives more than $10,000 in cash" in one or more related transactions to make certain returns to the government. See also R. 27 (Am. Compl. ¶ 29) (Page ID #262); id. ¶¶ 38-39 (Page ID #264-65) (discussing the concept of related transactions). The return must be "in such form as the Secretary [of the Treasury] may prescribe" and should contain "the name, address, and [taxpayer identification number] of the person from whom the cash was received,... the amount of cash received, ... the date and nature of the transaction, and ... such other information as the Secretary may prescribe." 26 U.S.C. § 6050I(b). "Cash received by financial institutions" and cash obtained via a transaction that takes place entirely "outside the United States" is not subject to the reporting requirements. Id. § 6050I(c).

"Trade or business" has the same meaning in the statute as it does in 26 U.S.C. § 162. See 26 C.F.R. § 1.6050I-1(c)(6). Although a flexible concept, as a practical matter "trade or business" ordinarily encompasses activity whose "primary purpose" is meant to make "income or profit," as opposed to "[a] sporadic activity, a hobby, or an amusement diversion." See Comm'r v. Groetzinger, 480 U.S. 23, 35, 107 S.Ct. 980, 94 L.Ed.2d 25 (1987) ("Of course, not every income-producing and profit-making endeavor constitutes a trade or business."); see also R. 27 (Am. Compl. ¶ 32) (Page ID #263); 26 C.F.R. § 1.183-2(b) (enumerating relevant factors to consider when deciding "whether an activity is engaged in for profit").

Until recently, cash meant "foreign currency" or "any monetary instrument ... with a face amount of not more than $10,000." 26 U.S.C. § 6050I(d)(1)-(2); see also R. 27 (Am. Compl. ¶ 30) (Page ID #262); 26 C.F.R. § 1.6050I-1(c)(1)(ii). This included "[t]he coin and currency of the United States or of any other country" as well as, in certain scenarios, cashier's checks, bank drafts, traveler's checks, and money orders "having a face amount of not more than $10,000." 26 C.F.R. § 1.6050I-1(c)(ii)(A)-(B). The 2021 Infrastructure Investment and Jobs Act, however, amended the definition of "cash" to include "any digital asset." 26 U.S.C. § 6050I(d)(3); R. 27 (Am. Compl. ¶ 41) (Page ID #265). "Except as otherwise provided by the Secretary, the term 'digital asset' means any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary." 26 U.S.C. § 6045(g)(3)(D); see also R. 27 (Am. Compl. ¶ 42) (Page ID #265).

B. Cryptocurrency

One type of digital asset is cryptocurrency. R. 27 (Am. Compl. ¶ 43) (Page ID #266). Cryptocurrency often uses "open-source code," which allows the public to view, copy, and use the code without paying. Id. ¶ 44 (Page ID #266). Plaintiffs allege that a given cryptocurrency program relies on "fixed rules of operation designed to facilitate secure and reliable transactions." Id. ¶ 45 (Page ID #266). To engage in transactions using cryptocurrency, users must have a "private key" and an "address," both of which are "random but unique" strings of letters and numbers particular to an individual. Id. ¶¶ 46-47 (Page ID #266). To consummate a transaction, a receiver of cryptocurrency provides the sender with their unique address. Id. ¶ 48 (Page ID #266). The sender "digitally signs" with their private key a "transaction message" that specifies the amount of cryptocurrency to be sent. Id. ¶¶ 48-49 (Page ID #266).

According to plaintiffs, once this first part of the cryptocurrency transaction is complete, "miners" work to "review and validate the transaction message." Id. ¶ 50 (Page ID #267). Through verifying the underlying details of the transaction, such as that the proper private key was entered or that the sender has the requisite amount of cryptocurrency to send, miners' work also results in the transaction being listed on a public ledger. Id. ¶¶ 50, 52 (Page ID #267). Miners are incentivized to do this verification work because they receive some amount of cryptocurrency as a reward. Id. ¶ 51 (Page ID #267).

The hallmarks of cryptocurrency are decentralization and anonymity. Plaintiffs claim that miners do not have any personal stake in a given transaction or even know the parties to a transaction, and instead miners contribute to the transaction's completion for the reward of cryptocurrency. Id. Likewise, despite the fact that transactions are listed on a public ledger, the ledger reveals only the addresses involved in a transaction and the amount of cryptocurrency exchanged. Id. ¶¶ 53-55 (Page ID #267-68). Because the addresses themselves do not reveal any personal information, the public has little insight into the parties to a transaction. Id.; see also id. ¶¶ 67-68 (Page ID #270). If, however, "a user's personal information is linked to an address," substantial information about the user's transactions may be uncovered. Id. ¶ 58 (Page ID #268). This is so because transactions associated with a given address are listed on the public ledger. Id. A user might voluntarily disclose that a given address is theirs in order to facilitate transactions with them. Id. ¶ 60 (Page ID #268-69). But a person may be linked to an address indirectly if they share details of a given transaction, allowing someone to work backwards from the public ledger by locating the transaction and then connecting the address to the user. Id. Whether through law-enforcement techniques or otherwise, id. ¶ 61 (Page ID #270), a savvy member of the public may also be able to deduce a user's other addresses and transactions through "analyzing the activity of their known addresses," id. ¶ 69 (Page ID #270-71).

C. The Interaction Between the Amended Reporting Requirements and Cryptocurrency

Under plaintiffs' view, the amended reporting requirements will require both senders and receivers of cryptocurrency to disclose certain information. A sender of more than $10,000 in cryptocurrency will need to disclose to the receiver their Social Security Number, name, and address. Id. ¶ 94 (Page ID #278). The receiver will need to include this information in the report sent to the government. Id. A receiver of cryptocurrency will need to include their own Social Security Number, name, and address in the report as well. Id. ¶ 95 (Page ID #278). Along with this information, the receiver will need to report the amount of cryptocurrency received, when the transaction occurred, and its "nature." Id. ¶ 96 (Page ID #279) (citation omitted). Finally, the receiver will need to include "any other information required by Form 8300," which is the form used to complete the reports. Id. ¶ 97 (Page ID #279); see also 26 C.F.R. § 1.6050I-1(e)(2). Although not part of the report, a receiver must also "'verify the identity' of the sender" under 26 C.F.R. § 1.6050I-1(e)(3)(ii), by, for example, examining the sender's passport or driver's license. Id. ¶ 98 (Page ID #279). In addition to these requirements, receivers of cryptocurrency must follow certain procedures. They must sign the report under penalty of perjury and file the report within fifteen days of the transaction. Id. ¶ 100 (Page ID #282) (citing 26 C.F.R. § 1.6050I-1(e)(1)). Receivers must "furnish to each person whose name is required to be set forth in such return a written statement showing" a receiver's name, address, phone number, and the "aggregate amount of cash" received. 26 U.S.C. § 6050I(e); see also R. 27 (Am. Compl. ¶ 102) (Page ID #282). And receivers must retain copies of any reports made for...