The U.S. cryptocurrency exchange Kraken is set to transmit user data to the Internal Revenue Service (IRS) in November, in compliance with a court order issued back in June.
In compliance with a court order issued in June, the U.S. cryptocurrency exchange Kraken is scheduled to transfer user data to the Internal Revenue Service (IRS) in November. Affected users were reportedly informed about this development via an email from the exchange, which stated that user information would be shared "by the court's order in early November 2023." Kraken declined to provide any additional comments regarding the situation. Earlier this year, in February, the IRS filed a petition with the District Court in the Northern District of California to compel Kraken to disclose user data. The IRS alleged that Kraken had not adhered to a John Doe summons issued by the federal agency in 2021. A John Doe summons is a type of subpoena that allows the IRS to obtain information about taxpayers whose identities are unknown.
Kraken Prepares to Disclose User Database
The IRS is poised to initiate an investigation into the tax activities of cryptocurrency users who conducted transactions from 2016 to 2020.
The primary objective is to determine if any users of cryptocurrency exchanges inaccurately reported their tax obligations.
On June 30, a federal court mandated that Kraken must furnish comprehensive information regarding users engaged in transactions exceeding $20,000 during the specified timeframe.
This information encompasses real names or aliases, date of birth, taxpayer identification numbers, addresses, phone numbers, email addresses, and various other documents.
The IRS had initially sought access to additional details, including IP addresses, registration particulars, income data, and banking information. However, Judge Joseph Spero declined to approve these requests unless the government could provide a compelling rationale.
The judge stressed that the IRS must clearly justify the relevance of each category of information they were requesting for their investigation. Additionally, they were advised to consider deferring requests for more extensive and invasive information until they had reviewed basic account registration details and transaction history.
Kraken, in its notification email, also mentioned that the court had reduced the number of affected customers from 59,331, as initially requested by the IRS, to 42,017.
As regulatory measures continue to tighten in the cryptocurrency sphere, it is likely that we will witness more rigorous enforcement. Many cryptocurrency users who placed their trust in exchanges may find themselves impacted, and in some cases, they may even face legal consequences.