IRS Investigation Demands User Data from Kraken
In a court order, Kraken, a popular cryptocurrency exchange, has been instructed to provide a significant amount of user information to the Internal Revenue Service (IRS) as part of an investigation into underreported tax liability. The IRS seeks data on Kraken accounts that engaged in cryptocurrency trading exceeding $20,000 in any single year between 2016 and 2020. Kraken had objected to the IRS’s summons, deeming it an unjustified intrusion.
Intensifying Crackdown on Digital Currency
The court ruling in favor of the government’s request aligns with the United States’ ongoing crackdown on cryptocurrency. Recent lawsuits filed by the Securities and Exchange Commission (SEC) accuse Coinbase of operating an illegal exchange and allege that Binance.US mishandled customer funds, misled investors and regulators, and violated securities rules.
IRS Gains Partial Victory in Data Request
While the IRS did not obtain all the information it sought from Payward Inc. The company behind Kraken, US Magistrate Judge Joseph Spero ordered the exchange to disclose users’ names, birth dates, taxpayer identification numbers, addresses, phone numbers, email addresses, relevant documents, and transactional ledgers. The judge justified the IRS’s request as necessary to determine the correct federal income tax liability for users during the specified timeframe.
Kraken’s Significance and Response
Kraken boasts a prominent position in the cryptocurrency market, with a daily global trading volume of approximately $650 million, according to CoinMarketCap. Despite the court ruling, Kraken has yet to comment on the matter in response to media inquiries.
Comparison to the Coinbase Case
The judge referenced the previous dispute between Coinbase and the IRS, noting. The agency had scaled back its initial information request. Although Coinbase resisted, a judge ultimately ruled in favor of the IRS. It is considering its legitimate interest in investigating taxpayers who potentially underreported Bitcoin gains. Contrary to Kraken’s argument, the judge clarified. The Coinbase decision did not establish a limit on the number of cryptocurrency accounts that the IRS can target.
Limitations and Exclusions in the Ruling
While granting the IRS’s request, the judge excluded certain demands for information, such as users’ employment, net worth, and source of wealth, as well as data from anti-money laundering investigations.
In conclusion, Kraken’s legal obligation to share user information with the IRS adds to the growing regulatory scrutiny surrounding cryptocurrencies. The ruling signifies the IRS’s determination to ensure accurate reporting and taxation of cryptocurrency-related income.
