On June 30, a US court ruled that Kraken must provide its users’ information to the Internal Revenue Service (IRS), to investigate those who do not file their taxes. The court ruled that the IRS has a legitimate reason to obtain the information from the cryptocurrency exchange due to activity on the platform. President Joe Biden wants the government to close all loopholes that could result in low taxes for crypto investors.

A US trial court has ordered Kraken to provide its users’ personal information to the Internal Revenue Service (IRS) as part of the agency’s investigation into unreported taxes.

In a June 30 ruling, Magistrate Judge Joseph Spero ended Kraken’s fight to prevent the IRS from gaining access to its users’ data. The order would make the cryptocurrency exchange provide information on all accounts that traded at least $20,000 worth of cryptocurrency between 2016 and 2020. Full documentation includes name, tax identification number, physical address, phone number, email addresses, and transaction book.

Court Justifies Decision Against Kraken

According to the judge, the IRS has a legitimate reason for obtaining the information because the amount of trading activity on Kraken far exceeds the taxpayers filing returns related to cryptocurrency investments.

“The Government has a legitimate purpose for seeking the materials described in the subpoena. As discussed above, the subpoena was issued in connection with an IRS investigation to determine the identity and correct federal income tax liability of US individuals who transacted in cryptocurrency during the period 2016-2020.”

In his ruling, Judge Spero quoted an IRS agent, Karen Cincotta, who claimed that Kraken had more than 4 million customers trading more than $140 billion on the platform between 2011 and 2017. However, Cincotta noted that only 288,330 customers have filed official tax returns, a number “dwarfed by the amount of trading activity that occurs on Kraken.”

Payward Ventures Inc., which operates Kraken, one of the world’s third largest exchanges according to various sources, has been a struggling government agency for some time; In addition, it has processed more than 500 million dollars in operations in the last 24 hours.

Last April, a judge rejected the IRS’s demands to review Kraken’s records, though a higher court gave the IRS the green light to continue its investigation.

The judge agreed that Kraken’s underreporting of third-party information contributes to substantially higher underreporting of income.

Meanwhile, the Court rejected the IRS’s demand for information on anti-money laundering investigations, as well as other details in Kraken’s due diligence questionnaires, including users’ net worth, source of income, and employment.

In 2021, the IRS issued a subpoena from John Doe to Kraken, requesting that the exchange provide information about its users. The platform refused to comply with this request, forcing the federal agency to file a court petition.

What Does This Mean for the Crypto Industry?

Although it is not the first time that the IRS requests information from exchange users for tax purposes. The timing of this decision is important as the crypto industry faces various challenges from regulatory authorities in the United States.

Recent rhetoric from US President Joe Biden suggests that the government wants to close all the loopholes, since they could result in low taxes for crypto investors. In a June 28 speech, Biden said his administration would make the tax system fair. It would do so “by removing loopholes for cryptocurrency traders and hedge fund managers.”

By Audy Castaneda


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