Court Orders Kraken to Provide User Information To IRS

A US federal court has ordered top crypto exchange Kraken to turn over user information to the Internal Revenue Service (IRS). Kraken had earlier announced that it would settle charges brought against it by the United States Securities and Exchange Commission (SEC).

Following this, the IRS also filed a petition demanding that the exchange provides sensitive user data to the revenue collection agency. The order also follows the failure of Kraken to comply with previous “discussions” with the IRS.

“Despite discussions between the parties, Payward Ventures Inc. [one of the registered companies that make up Kraken] & Subsidiaries has failed to comply with the summons and has not produced the books, records, papers, and other data demanded in the summons. Payward Ventures Inc. & Subsidiaries’ failure to comply with the summons continues to this date,” the IRS said in a statement in a February petition.

The IRS was seeking information on user accounts that have carried out at least $20,000 worth of cryptocurrency trading in a single year between 2016 and 2020. Responding, Kraken said the agency was embarking on an “unjustified treasure hunt” and overstepping its bounds as was the case with Coinbase.

Court Turns Down Some IRS Requests

Although the court granted the petition of the IRS that Kraken should furnish the agency with user information, the court did not grant all of the requests it put forward. Among the requests rejected were the request to receive employment information and source of users’ wealth from the exchange. In his ruling, the judge said:

“The Court must determine whether the Government’s summons is narrowly tailored, that is, whether it is ‘no broader than necessary to achieve its purpose. The Court finds that to the extent the first three requests are aimed at establishing the identities of the Kraken account holders who fall within the Doe definition, the information sought in these requests is much broader than what is necessary to achieve that purpose for the vast majority of Doe users.”

As stated earlier, Kraken isn’t the first crypto exchange to have a misunderstanding with the IRS concerning user data. The agency had in 2018 petitioned a federal district high court requesting permission to seek information regarding virtual currency transactions from Coinbase.

Following the granting of the petition by the court, the IRS served a “John Doe” summons on Coinbase, seeking information about U.S. persons conducting convertible virtual currency transactions between between 2013 and 2015.

Like Kraken, Coinbase refused to comply, resulting in an enforcement action. It remains to be seen what step Kraken will take next, whether it will comply or face enforcement actions like Coinbase.

Crypto Turmoil in America

The IRS is bringing up the issue with Kraken at a time when the securities and exchange commission (SEC) is embarking on a major crypto crackdown. Kraken is one of the top crypto exchanges in the US and although it has not been affected by the SEC’s crackdown, it could be the next target with the upcoming IRS case.

Meanwhile, the SEC had earlier this year ordered the exchange to shut down its staking services in the US and pay a $30 million fine. Kraken did comply with the order, but that doesn’t rule out the possibility of the SEC bringing up fresh allegations in the future.

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