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IRS wins battle against Kraken to disclose customer information

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TL;DR Breakdown

  • The Internal Revenue Service (IRS) has obtained a federal court order requiring cryptocurrency exchange Kraken to provide account and transaction information.
  • The purpose of the investigation is to identify any tax liabilities among users who conducted cryptocurrency transactions on the platform between 2016 and 2020.
  •  The judge denied the IRS’s attempt to obtain employment information and source of wealth details from Kraken. 

Description

The Internal Revenue Service (IRS) has obtained a federal court order requiring cryptocurrency exchange Kraken to provide account and transaction information. The IRS stated that it needed this information to investigate potential tax underreporting by Kraken’s users. The court petition was filed in the Northern District of California in February, shortly after Kraken settled charges … Read more

The Internal Revenue Service (IRS) has obtained a federal court order requiring cryptocurrency exchange Kraken to provide account and transaction information. The IRS stated that it needed this information to investigate potential tax underreporting by Kraken’s users. The court petition was filed in the Northern District of California in February, shortly after Kraken settled charges with the U.S. Securities and Exchange Commission (SEC) regarding alleged violations of securities law related to its staking service.

The IRS claimed that it had issued a summons to Kraken in 2021, which the exchange failed to comply with, leading to the court’s involvement. The purpose of the investigation is to identify any tax liabilities among users who conducted cryptocurrency transactions on the platform between 2016 and 2020.

According to the court order issued on Friday, Kraken is required to provide information for users who engaged in transactions exceeding $20,000 within a calendar year. The information to be provided includes users’ names (including pseudonyms), birthdates, taxpayer identification numbers, addresses, phone numbers, email addresses, and various other documents. 

IRS vs Kraken

Additionally, Kraken must supply blockchain addresses and transaction hashes that are already part of the transaction data accessible to the exchange. The court also stated that Kraken may be required to provide raw data to the IRS.

Judge Joseph Spero, presiding over the case, appears to have rejected some of the IRS’s requests. The judge denied the IRS’s attempt to obtain employment information and source of wealth details from Kraken. In his analysis of the requests, Judge Spero emphasized the need for the summons to be narrowly tailored and not broader than necessary to achieve its purpose. He concluded that some of the IRS’s requests were too extensive and exceeded what was necessary to identify the majority of the Doe users falling within the defined scope.

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