Crypto Exchange Kraken Ordered to Submit User Transaction Data to IRS – Here’s the Latest

Cryptocurrency exchange Kraken has been ordered by a judge to submit a vast amount of user information to the Internal Revenue Service (IRS) for an investigation into potential tax evasion. 

The United States District Court for the Northern District of California issued the order on Friday, stating that Kraken must provide account and transaction details to the IRS to determine whether any users have underreported their taxes.

Under the order, Kraken is required to disclose information about users who engaged in transactions exceeding $20,000 within a calendar year.

This includes their names (real or pseudonyms), birthdates, taxpayer identification numbers, addresses, phone numbers, email addresses, and other relevant documents. 

The court petition was filed by the IRS in February, soon after Kraken reached a settlement with the US Security Exchange Commission over allegations of securities law violations related to its staking service.

The IRS said that it had previously issued a summons to Kraken in 2021, but the exchange failed to comply, prompting the agency’s investigation into the tax obligations of users who conducted cryptocurrency transactions between 2016 and 2020. 

As part of the court order, Kraken will also have to provide blockchain addresses and transaction hashes that are already part of the exchange’s transaction data. Additionally, Kraken may be required to produce raw data for the IRS.

Kraken is a top crypto exchange with more than $819 million in daily trading volume over the past 24 hours, according to data by CoinGecko. 

Judge Denies Some of the IRS’s Requests

Judge Joseph Spero, who presided over the case, also denied several of the IRS’s requests. 

He rejected the agency’s demands for employment information and source of wealth from Kraken, as well as information from anti-money laundering investigations. 

“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 judge wrote in his analysis of some of the IRS’s requests. 

“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.”

Nevertheless, Friday’s ruling in favor of the government reflects the increasing crackdown on cryptocurrencies in the United States.

Last month, the SEC sued both Binance, the world’s largest cryptocurrency exchange, and Coinbase, the largest US-based cryptocurrency exchange. 

The commission filed 13 charges against Binance and its US affiliates, ranging from allegedly operating as an unregistered exchange to offering unregistered securities. 

The regulator also levied similar charges against Coinbase, claiming that it operated as an exchange, broker, or clearing agency without the required registrations. 

Furthermore, the SEC has taken enforcement action against crypto exchanges Kraken and Bittrex, as well as crypto lending platform Nexo so far this year.