In a significant development, the U.S. District Court of Northern California has ruled that Kraken, a prominent cryptocurrency exchange, must comply with an Internal Revenue Service (IRS) request for a wide range of user information. The court ruling, announced yesterday, mandates Kraken to provide comprehensive documentation for any user who engaged in cryptocurrency transactions amounting to at least $20,000 between 2016 and 2020.
The court filing, made on Friday, outlined the specific information that Kraken is required to furnish. This includes the users’ names, taxpayer identification numbers, physical addresses, phone numbers, email addresses, and transactional ledgers. The IRS seeks to obtain a comprehensive understanding of the cryptocurrency trading activities conducted by Kraken users during the specified period.
However, the court denied several separate petitions made by the IRS, which sought additional information related to money laundering activities, clients’ net worth, and the sources of their wealth, among other details.
Karen Cincotta, the IRS agent leading the case, revealed that Kraken accounts for more than 4 million users and has processed an impressive $140 billion in transactions since its establishment in 2011. Cincotta highlighted that only 288,330 clients have officially filed tax returns, a significantly smaller number compared to the extensive trading activity witnessed on the Kraken platform.
Payward Ventures Inc, the operator of Kraken and one of the world’s third-largest cryptocurrency exchanges according to Coingecko, has been engaged in an ongoing battle with the IRS. Last April, a judge initially rejected the IRS’s demands to review Kraken’s records, but a higher court subsequently permitted the IRS to proceed with its investigation.
Kraken has consistently refused previous requests for information from the IRS, along with other summons issued by the agency. However, the company did publish a crypto tax guide in April, demonstrating its willingness to engage with tax-related matters.
This latest development occurs amidst a broader regulatory crackdown on various cryptocurrency platforms. The U.S. Securities and Exchange Commission (SEC) has taken legal action against Coinbase and Binance’s U.S. branch, both accused of alleged unregistered securities offerings.
Kraken itself has faced regulatory challenges in recent months. Earlier this year, the SEC imposed a $30 million fine on the exchange, ordering it to halt its staking service. Additionally, Kraken has been unsuccessful in its attempts to gain access to the Federal Reserve payment system.
The ruling forcing Kraken to provide user information to the IRS marks a significant milestone in the ongoing relationship between cryptocurrency exchanges and regulatory authorities. It remains to be seen how this decision will impact the wider cryptocurrency industry and future regulatory efforts.
