Kraken’s Attempt to Block IRS’ Crypto Gains Tax Probe Is Foiled

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A United States District Court has ordered Kraken to provide its users’ personal information to the Internal Revenue Service (IRS) as part of the agency’s investigation of underreported taxes.

In a June 30 decision, Magistrate Judge Joseph Spero ended Kraken’s fight to prevent the IRS from gaining access to its users’ data. The order would see the crypto exchange provide information on all accounts that traded at least $20,000 in cryptocurrency between 2016 and 2020.

Judge Spero ordered Kraken’s parent company, Payward Inc., to provide information such as user names, taxpayer identification numbers, phone numbers, emails, addresses and other transactional information.

The court justifies its decision against Kraken

According to the judge, the IRS has a legitimate reason to obtain the information because the volume of trading activity on Kraken far exceeds taxpayer reports related to cryptocurrency investments.

“The government has a legitimate purpose in seeking the items described in the summons. As noted above, the subpoena was issued as part of an investigation by the IRS to determine the identity and federal income tax liability of U.S. persons who transacted in cryptocurrency. during the period 2016-2020.

In his ruling, Judge Spero cited an IRS agent who claimed that Kraken had more than 4 million customers who traded over $140 billion on the platform between 2011 and 2017. According to data from BeInCrypto, Kraken is one of the leading cryptocurrency exchanges in the United States, processing over $500 million in transactions in the last 24 hours.

Kraken trading volume (Source: BeInCrypto)

The judge also agreed that Kraken’s lack of third-party information reporting contributes to significantly higher underreporting of earnings.

Meanwhile, the court denied the IRS’ request for information on anti-money laundering investigations and other details in Kraken’s due diligence questionnaires, such as users’ net worth, source income and employment.

In 2021, the IRS issued a John Doe summons to Kraken, asking the exchange to provide information about its users. The platform refused to honor this request, forcing the federal agency to file a lawsuit.

What does this mean for the crypto industry?

While this isn’t the first time the IRS has requested user information from exchanges for tax purposes, the timing of this decision matters as the crypto industry faces several challenges from authorities. regulations in the United States.

On top of that, recent rhetoric from US President Joe Biden suggests that the government wants to close any loopholes that could lead to low taxes for crypto investors. In a June 28 speech, Biden said his administration would make the tax system fair “by closing loopholes for crypto traders, hedge fund managers.”

Disclaimer

In accordance with the guidelines of the Trust Project, BeInCrypto is committed to providing impartial and transparent reports. This news article aims to provide accurate and timely information. However, readers are urged to independently fact-check and seek professional advice before making any decisions based on this content.

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