A judge ordered the cryptocurrency exchange Kraken to provide the Internal Revenue Service access to a wide range of customer data in order to support the IRS’s investigation into unreported tax liability.
According to the IRS, data on Kraken accounts that traded cryptocurrencies for at least $20,000 in any given year between 2016 and 2020 is required. Kraken has referred to the agency’s summons as a “unjustified treasure hunt,” contending that it went well beyond the parameters established in a conflict with Coinbase nearly six years prior.
The verdict on Friday side with the government comes as the US assault on cryptocurrencies intensifies. This month, the Securities and Exchange Commission filed two distinct complaints, accusing Coinbase of operating an illicit exchange and Binance of doing the same.US mismanaged client cash, deceived authorities and investors, and violated securities laws.
The San Francisco-based Payward Inc., which was founded in 2011 to run Kraken, did not grant the IRS everything it requested, but US Magistrate Judge Joseph Spero ordered the company to turn over users’ names, birth dates, taxpayer identification numbers, addresses, phone numbers, and email addresses, as well as some documents and transactional ledgers.
According to the court’s ruling, the IRS “has a legitimate purpose for seeking the materials,” namely to “determine the identity and correct federal income tax liability” for users within the specified time frame.
Taxpayers who file returns with assets tied to bitcoin are “dwarfed by the amount of trading activity that occurs on Kraken,” Spero said, supporting the agency’s requests. According to the ruling, the exchange was enrolling up to 50,000 new users every day and had 4 million consumers who made more than $140 billion in deals between 2011 and 2017.
According to CoinMarketCap, the leading cryptocurrency exchange Kraken has a daily trading volume of almost $650 million worldwide. An email seeking comment from the firm on the decision received no immediate response.
The IRS provided data, which the judge accepted, demonstrating that under-reporting of revenue is “substantially higher where there is no third-party information reporting, as is the case with Kraken.”
In a previous battle between Coinbase and the organization, the IRS lowered its initial demand, but the firm resisted. The IRS had a legitimate interest in looking into taxpayers who might not be disclosing their Bitcoin earnings, so the judge determined that a summons targeting more than 14,000 customers of the exchange wasn’t too invasive.
While both the US and Kraken made arguments that appeared to be misrepresenting the Coinbase judgment, Spero stated that it is “clearly not the case,” as Kraken asserted, that the previous decision put a cap on the amount of Bitcoin accounts that the IRS can target.
The judge denied IRS requests for data from the due diligence Kraken questionnaires on users’ employment, financial worth, and wealth sources. Additionally, he refrained from directing Kraken to provide information gleaned from anti-money laundering inquiries.
Payward Ventures Inc. is the defendant in United States of America v. Payward Ventures Inc., 23-mc-80029, filed in the Northern District of California (San Francisco).