A judge ordered the cryptocurrency exchange Kraken to provide extensive information about its users for the Internal Revenue Service to investigate under-reported tax liabilities.
The IRS wants to know about Kraken accounts which have traded at least $20,000 in cryptocurrency each year between 2016 and 2020. Kraken called the summons from the IRS an “unjustified hunt” and said it exceeded the limits set in a similar battle with Cobase six years ago.
The ruling on Friday siding with the government coincides with a growing US crackdown against cryptocurrency. This month, the Securities and Exchange Commission filed separate lawsuits accusing Coinbase and Binance.US of operating an illegal exchange and claiming that they mishandled customers’ funds, misled regulators and investors, and violated securities laws.
The IRS did not get everything they wanted from Payward Inc. in San Francisco, which was established in 2011 and operates Kraken. However, US Magistrate Joseph Spero ordered the company to provide names, birthdates, taxpayer identification numbers as well as addresses, phone numbers, emails, documents, and transactional ledgers.
The IRS has a “legitimate purpose” in seeking these materials, the judge wrote. It is to “determine if the users are correct and liable for federal income taxes,” during the specified time period.
Spero stated that the agency’s demand is backed by the fact the taxpayers who file returns with Bitcoin investments are “dwarfed” by the amount trading activity on Kraken. According to the order, Kraken had over 4 million customers who traded more than $140 billion between 2011 and 2017. It was also registering up to 50,000 new users every day.
Kraken, according to CoinMarketCap, is the top crypto exchange in the world with a daily trading volume of approximately $650 million. The company did not immediately respond to a request for comments on the ruling.
The judge accepted the IRS’s testimony that the under-reporting is “substantially greater” when there is no third party information reporting. Kraken is one example.
The IRS backed down from its original request in the dispute between Coinbase, and the agency. However, the company refused to budge. The judge ruled that the summons sent to more than 14,000 users of the exchange was not overly intrusive, because the IRS has a legitimate interest to investigate taxpayers who might not be declaring their Bitcoin gains.
Spero stated that both the US as well as Kraken had made arguments which bordered on mischaracterizing Coinbase’s ruling. It is “clearly” not the case, Kraken claimed, that an earlier decision set a limit to the number of cryptocurrency account that could be targeted by IRS.
The judge refused to order Kraken to turn over information from anti-money laundering investigations. He declined to order Kraken turn over anti-money laundering investigation information.
United States of America, v. Payward Ventures Inc. 23-mc-80229, US District Court Northern District of California, San Francisco.