The US District Court for the Northern District of California has issued an order requiring cryptocurrency exchange Kraken to provide account and transaction information to the Internal Revenue Service (IRS). The IRS seeks this information to investigate potential underreporting of taxes by users of the exchange. As per the order issued on June 30, Kraken is mandated to disclose details of users who conducted transactions exceeding $20,000 in a calendar year, including personal information such as names (real or pseudonyms), date of birth, taxpayer identifying ation number, address, phone number, email addresses, and various other documents.
The IRS had filed a petition in February in response to Kraken's settlement with the Securities and Exchange Commission (SEC), which alleged violations of securities laws by the exchange's staking service. The agency claims that it had previously issued a subpoena to Kraken en in 2021, but the exchange failed to comply. Now, the IRS seeks to investigate the tax obligations of users who traded cryptocurrencies between 2016 and 2020. Additionally, Kraken will be required to disclose blockchain addresses and transaction hashes already present in the available transaction data, and may have to provide raw data to the IRS.
Judge Joseph Spero, overseeing the case, dismissed certain aspects of the IRS's requests, including the demand for employment information and sources of wealth from Kraken. The judge emphasized that the court must ensure that the government's subpoena is appropriately focused, mean ing it should not extend beyond what is necessary to achieve its intended purpose. The court found that the initial requests sought to identify account holders but were overly broad and exceeded the information needed for user identification.
This ruling comes as part of the increased scrutiny and regulatory actions targeting the cryptocurrency industry in the United States. In June, the SEC filed lawsuits separately against Coinbase, accusing it of operating an illegal exchange, and against Binance.US, alleging mishandling of customers funds, misleading investors and regulators, and violations of securities rules. The court's decision supports the IRS's efforts to obtain user information from Kraken as part of the government's intensified efforts to enforce tax compliance in the cryptocurrency space.
