Carman: A Tax-Reporting Privacy Challenge Could Obtain Evidence About Government Data Use

A requirement to report a financial transaction can raise a privacy concern at the moment you disclose it. That concern is different from a fear that the government might later misuse the information. In Carman, cryptocurrency users challenged a federal reporting law. After an appeal narrowed their constitutional claims, a Kentucky federal judge allowed them to obtain information about how the government uses and shares the reports. The January 22, 2026 filed order concerned evidence for the surviving claims; the constitutional challenge remained to be decided.

The appeal separated initial disclosure from possible later misuse

Congress amended section 6050I of the Internal Revenue Code in 2021 to include digital assets in its definition of cash. The plaintiffs, who regularly engaged in cryptocurrency transactions, sued in 2022. Their claims addressed both the information the statute called for and what authorities might do with it afterward. The district court initially dismissed the action on standing and ripeness grounds—questions about who could sue and whether the dispute was ready for a court to decide.

In Carman v. Yellen, 112 F.4th 386, 405–407 (6th Cir. 2024), the Sixth Circuit distinguished two theories. Predictions that authorities would use public-ledger analysis to uncover additional transactions and associations depended on events that might never happen. But the alleged invasion caused by the initial required disclosure presented a claim ready for review. The First and Fourth Amendment challenges to that initial disclosure could proceed. Carman describes that distinction and the appeal’s effect on the case.

Why information about government use still mattered

Back in the district court, the plaintiffs sought answers about how the government analyzes, reviews, verifies, discloses and shares section 6050I information. Their motion covered nine written questions, three document requests and seventeen requests to admit facts. The magistrate judge allowed most of them, excluding one question and one document request. The government objected that operational information belonged to the dismissed theories about later misuse.

The district judge drew a different connection. How the government designs and uses its reporting system could help evaluate the fit between the required disclosure and the governmental interests offered to justify it. The same subject could therefore bear on a surviving constitutional claim even though it also related to a dismissed theory. Relevance depended on what the information could explain about the live claim. The court set out that reasoning in Carman.

The earlier appeal had not settled the discovery question

The government relied on the mandate rule and law of the case: A trial court must follow an appellate court’s decisions when a case returns. Judge Karen K. Caldwell agreed with that principle but rejected the government’s reading of the earlier decision. The Sixth Circuit had resolved standing and ripeness. It had expressly left the constitutional merits for further consideration and had not decided which discovery the remaining claims permitted.

Allowing the requests therefore respected the appeal’s limits. The plaintiffs could seek relevant evidence for their initial-disclosure claims while the dismissed theories stayed out of the case. Carman explains why the government’s proposed discovery restriction went beyond what the appellate court had actually decided.

The plaintiffs’ positions were not inconsistent

The government also invoked judicial estoppel, which can prevent a litigant from gaining an advantage by persuading courts to accept clearly inconsistent positions. It argued that the plaintiffs had won their appeal by saying no further facts were needed, then sought those facts after returning to the trial court.

The district court rejected that characterization. A claim can be ready for judicial review without having all the evidence needed to decide its merits. The plaintiffs had advanced different legal theories and were now gathering evidence for the ones that survived. The judge also found no unfair advantage or prejudice of the kind the estoppel doctrine addresses. Carman connects those conclusions to the plaintiffs’ actual positions, rather than announcing that a party may freely change its case after an appeal.

The order allowed evidence gathering, with the surviving claims as its limit

The magistrate judge had found the allowed requests relevant and proportional to the case. The district judge upheld that determination. Information obtained in discovery could illuminate the government’s justification for collecting the reports even if every item ultimately would not be admissible at trial. Obtaining material and using it to prove a claim are separate steps.

The judge overruled the government’s objections, lifted the discovery stay and required supplemental responses within thirty days of entry of the order. That was a direction to the government in this case, not a filing deadline for readers. The order’s concluding section kept the dismissed claims outside the litigation. Carman states the actual relief.

For someone considering a reporting-related privacy challenge, the useful comparison is specific: What information is compelled, what injury the claim identifies, what earlier orders decided and how the requested evidence bears on the remaining issue. This Eastern District of Kentucky order applied a Sixth Circuit remand; a California case requires analysis under its own governing law and orders. Our analysis of CIC Services addresses a different question—whether a reporting-rule challenge can enter federal court under the Anti-Injunction Act.