The IRS has asked a district court in California to dismiss a filing by a Coinbase customer that might prevent it from gaining access to the company's user data.
Filed in the US District Court of Northern California (which oversees the city of San Francisco where Coinbase is headquartered), the new documents request the filing be dismissed on the grounds that the request was only for unidentified users of Coinbase.
In the process of filing his documents to prevent the search, so goes the IRS argument, lawyer Jeffrey K Berns of the Berns Weiss law firm had revealed himself as a user, and as a result, was no longer of interest to their query.
The IRS now requests that its earlier motion be allowed to proceed.
Yet by 30th November, US District Judge Jacqueline Scott Corley had approved the request, paving the way for the IRS to force Coinbase to hand over information about its users.
In addition to concerns that the request for the Coinbase user information was "overbroad", Berns expressed concerns that handing over user information could make users vulnerable to attack.
All told, the filing represents the latest in an escalation of legal filings that have occured since it was revealed in November that the IRS would seek to target cryptocurrency users for potential tax violations.
The action followed a recommendation from the agency's inspector general earlier that month in which it found the IRS had done little to police cryptocurrency tax infringements since ruling on its classification in 2013.
When reached for comment by CoinDesk earlier this month Coinbase said it looks "forward to engaging the IRS," adding that it will keep its customers updated on developments.
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