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  • Writer's pictureConnie Chan

Kraken to give user data to IRS.

Kraken to give user data to IRS.
Kraken to give user data to IRS.

Kraken, a cryptocurrency exchange, has received a federal court order to provide user account information and transaction history to the IRS. The purpose of this request is to investigate whether Kraken's users have underreported their taxes. The order is part of a larger effort to regulate the cryptocurrency industry and will necessitate the exchange to disclose significant user data to the authorities.

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Kraken to give user data to IRS. The IRS Headache

Kraken has been ordered by the court to provide the Internal Revenue Service (IRS) with a significant amount of user information. This decision was made following a court petition filed by the IRS in the Northern District of California, shortly after Kraken announced its intention to settle charges brought against it by the United States Securities and Exchange Commission (SEC). The SEC had accused Kraken of offering unregistered securities through its staking as a service program. The IRS had previously issued a summons to Kraken in 2021, but the exchange failed to comply. In its February petition, the IRS reiterated its demand for the requested information. Kraken to give user data to IRS.

“Despite discussions between the parties, Payward Ventures Inc. [one of the registered companies that make up Kraken] & Subsidiaries has failed to comply with the summons and has not produced the books, records, papers, and other data demanded in the summons. Payward Ventures Inc. & Subsidiaries’ failure to comply with the summons continues to this date.”

The Internal Revenue Service (IRS) is requesting information on Kraken accounts that have conducted a minimum of $20,000 worth of cryptocurrency trading in a single year between 2016 and 2020. Kraken has responded by calling the tax agency's summons an "unjustified treasure hunt" and argued that the summons exceeded the limits set in a comparable dispute with Coinbase about six years ago.

The Court Order

A federal court ruling has been issued as regulatory authorities in the United States continue to crackdown on the crypto markets. The Securities and Exchange Commission has already filed lawsuits against Binance and Coinbase, accusing them of mishandling customer funds, misleading investors, and breaking securities laws. The latest court order requires Kraken to provide account details and user information, including taxpayer identification number, birth date, user name or pseudonym, phone number, email address, and address, as well as other documents.

Additionally, Kraken will be required to provide transaction hashes and blockchain addresses that are already part of the transaction data it can share. The IRS has a legitimate reason for seeking this information, as it needs to determine the tax liability for exchange users within a certain time period. The IRS's demands are backed by the fact that taxpayers filing returns for Bitcoin-related investments are minuscule compared to the sheer volume of trading activity on Kraken. The order states that Kraken had over 4 million clients between 2011 and 2017, conducting over $140 billion worth of trades, and was registering 50,000 new users daily.

Several IRS Requests Rejected

The IRS faced setbacks as the judge denied multiple requests made by them. The judge also dismissed the tax agency's appeal to obtain employment details and wealth sources from the exchange. In his analysis of the requests, the judge stated that...

“The Court must determine whether the Government’s summons is narrowly tailored, that is, whether it is ‘no broader than necessary to achieve its purpose. The Court finds that to the extent the first three requests are aimed at establishing the identities of the Kraken account holders who fall within the Doe definition, the information sought in these requests is much broader than what is necessary to achieve that purpose for the vast majority of Doe users.”

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.


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