An investor's challenge to the Internal Revenue Service's (IRS's) seizure of his cryptocurrency-exchange records has teed up a showdown with the government at the U.S. Court of Appeals for the First Circuit over privacy rights and how the "third-party doctrine" applies in the digital age.

The Boston-based appeals court will consider a question-of-first-impression next month about whether the IRS violated a crypto trader's Fourth Amendment rights by obtaining his financial information from Coinbase without a warrant. The outcome could affect the government's ability to tax cryptocurrency profits.

Reed Smith partner Daniel H. Ahn said the case seeks to build on a landmark 2018 U.S. Supreme Court decision, U.S. v. Carpenter. There, the justices said the third-party doctrine—which holds that people have no reasonable expectation of privacy in information they give to banks or other third parties—doesn't apply when the government accesses cell phone location data without a search warrant.