The United States District Court for the Northern District of California has ordered crypto exchange Kraken to turn over account and transaction information to the Internal Revenue Service (IRS). The agency said it needed the information to determine if any of the exchange’s users had underreported their taxes.
As per the order issued on Friday, June 30, Kraken is required to provide details of users who engaged in transactions exceeding $20,000 within a calendar year, including names (real or pseudonyms), birthdates, taxpayer identification numbers, addresses, phone numbers, email addresses and various other documents.
In February, the IRS submitted a court petition in the Northern District of California shortly after Kraken reached a settlement with the U.S. Security Exchange Commission (SEC) over claims of securities law violations related to its staking service. The IRS claimed that it had issued a summons to Kraken in 2021, which the exchange failed to comply with, and now seeks to investigate the tax obligations of users who conducted crypto transactions between 2016 and 2020.
Additionally, Kraken will be required to release blockchain addresses and transaction hashes, which are already included in the transaction data available for sharing. The exchange may also be asked to provide raw data to the IRS.
Judge Joseph Spero, who presided over the case, seems to have dismissed the IRS’ attempt to obtain employment information and source of wealth from Kraken. The judge outright denied several of the IRS’ requests.
According to a Kraken spokesperson,
“We appreciate that the court rejected all these demands, recognizing that the IRS requests were much broader than necessary, protecting Kraken clients from identity theft and other harm in the event of a data leak by the IRS”
In the judge’s assessment of certain IRS requests, he stated that the court needs to ascertain if the government’s summons is appropriately focused, meaning it should not exceed what is necessary to accomplish its intended purpose.
According to the court’s findings, the information sought in the first three requests, which aim to identify Kraken account holders falling within the “Doe” definition, is overly broad and exceeds what most users need to establish their identities.
Friday’s ruling siding with the government comes amid a deepening U.S. crackdown on cryptocurrency. In June, the SEC filed separate lawsuits accusing Coinbase of running an illegal exchange and alleging Binance.US mishandled customer funds, misled investors and regulators, and broke securities rules.