Federal Court Orders Crypto Exchange Kraken to Provide User Account and Transaction Data to IRS for Tax Analysis

The United States Internal Revenue Service (IRS) has recently won a court order requiring popular cryptocurrency exchange Kraken to provide user account and transaction information. The IRS stated that it needed this information to investigate potential tax evasion by users of the exchange.

The court petition was filed by the IRS in February in the Northern District of California, shortly after Kraken settled charges with the US Securities and Exchange Commission (SEC). The charges against Kraken alleged that its staking service violated securities laws. The IRS claimed that it had issued a summons to Kraken in 2021, which the exchange failed to comply with, prompting the need for the court intervention.

According to the court order issued on Friday, Kraken is required to hand over account and transaction information for users who have transacted with over $20,000 in crypto per calendar year between 2016 and 2020. This information includes the user’s name, birthdate, taxpayer identification number, address, phone number, email address, and other relevant documents. Additionally, Kraken must provide blockchain addresses and transaction hashes that are already a part of the transaction data it can share, and may even be required to produce raw data for the IRS.

However, Judge Joseph Spero, overseeing the case, appears to have limited the extent to which the IRS can access information. The judge rejected the IRS’s request for employment information and the source of wealth for Kraken users. In his analysis, Judge Spero emphasized the importance of the IRS’s summons being narrowly tailored and not exceeding what is necessary to achieve its intended purpose. He stated that the requested information was much broader than what is needed to identify the majority of Kraken users falling within the IRS’s definition.

Kraken has not yet commented on the court’s decision, as spokespersons for the exchange have yet to respond to requests for comment. The implications of this court order extend beyond Kraken, potentially signaling increased scrutiny and regulation by the IRS on cryptocurrency transaction reporting and tax compliance.

In conclusion, Kraken has been ordered by a federal court to turn over user account and transaction information to the IRS, which is investigating possible tax evasion by its users. While Kraken must comply with the court order, the judge has limited the extent of the information the IRS can access, tempering concerns about user privacy. This case highlights the ongoing efforts by tax authorities to regulate cryptocurrencies and ensure tax compliance within the industry.