Kraken Ordered To Unveil Customer Data In IRS Crypto Tax Probe – What’s At Stake?

Kraken, the renowned digital currency exchange based in San Francisco, has been served with a court directive by a United States judge, compelling the disclosure of customer information to the Internal Revenue Service.

Access To Kraken Financial Records And Customer Data

In a court petition filed last February with the Northern District of California, the IRS expressed its intention to conduct a thorough investigation into Kraken’s financial records and data. The aim of this investigation is to identify cryptocurrency users who may have overlooked their tax obligations.

The IRS stated in the petition that its investigation seeks to determine the identities of individuals and their correct federal income tax liabilities.

This applies to those who engaged in cryptocurrency transactions during the years ended December 31, 2016, 2017, 2018, 2019, and 2020.

According to the IRS, a summons was sent to Kraken’s parent company, Payward Ventures Inc., in 2021, requesting customer information for traders who utilized the platform between 2016 and 2020.

The government believes that it has valid grounds to request the materials specified in the subpoena. Judge Joseph C. Spero, presiding over the case, ruled that the IRS is authorized to obtain items that may have potential relevance to an ongoing investigation, regardless of their admissibility.

In response to the IRS request, Spero has granted an order authorizing Kraken, the digital currency exchange, to disclose comprehensive user information.

The information includes full names, pseudonyms or user IDs, dates of birth, taxpayer identification numbers, physical addresses, telephone numbers, and email addresses.

This requirement applies to all Kraken users who have conducted transactions involving cryptocurrency assets, irrespective of the transaction type, with a combined value equal to or exceeding $20,000 during any of the specified years.

Coinbase Complies With Court Order, Discloses Customer Data To IRS

In November 2017, Coinbase, a prominent cryptocurrency exchange, found itself complying with a federal court order in San Francisco that mandated the disclosure of customer data to the IRS.

Despite the strong resistance put up by the America’s largest bitcoin broker, which vigorously opposed what it viewed as a blatant infringement on privacy and an unjustified data acquisition, Coinbase sought to salvage its reputation by declaring a “partial victory” in its ongoing struggle against the IRS.

The court ruling compelled Coinbase to provide the tax agency with identifying information of users who had engaged in transactions exceeding $20,000 between the years 2013 and 2015.

The IRS had directed its efforts towards uncovering individuals evading cryptocurrency taxes, inadvertently entangling Coinbase in its pursuit of information.

The legal battle between the IRS and Coinbase was cited multiple times during the court proceedings involving Kraken.

Featured image from Twitter, charts from TradingView.com