Kraken to Share User Data with IRS in November
In compliance with a court order from June, Kraken, a U.S. cryptocurrency exchange, will be sending user data to the Internal Revenue Service (IRS) in November. Affected users received an email notification from Kraken stating that their information would be shared “by the court’s order in early November 2023.” The exchange did not provide any further details on the matter.
IRS Petitions Court for User Data
The IRS filed a petition in February of this year, requesting that Kraken disclose user data. The federal agency claimed that Kraken had failed to comply with a John Doe summons issued in 2021, which allows the IRS to obtain information about taxpayers whose identities are unknown.
Investigation into Tax Affairs of Crypto Users
The IRS plans to launch an investigation into the tax affairs of users who conducted cryptocurrency transactions between 2016 and 2020. The purpose of this investigation is to determine if any users underreported their taxes.
Court Order Requires Detailed User Information
The federal court ordered Kraken to provide detailed information about users who engaged in transactions exceeding $20,000 during the specified period. This information includes real names or pseudonyms, date of birth, taxpayer identification number, address, phone number, email address, and other documents.
Judge Limits Requested Information
Judge Joseph Spero limited the information requested by the IRS. While they wanted access to additional details such as IP addresses and banking information, the judge required a strong rationale for each type of information and suggested deferring requests for more extensive and invasive details until basic account registration information and transaction history had been reviewed.
Reduced Number of Affected Customers
Kraken informed users in the notification email that the court had agreed to reduce the number of affected customers from 59,331 (as requested by the IRS) to 42,017.
Increased Regulatory Crackdowns Expected
As more regulations are implemented in the cryptocurrency space, there will likely be more regulatory crackdowns. Crypto users who relied on exchanges may face the impact of these crackdowns and even potential criminal charges.
IRS Focuses on Tax Compliance in Crypto Space
The IRS is concerned about tax evasion through cryptocurrency investments due to the relative anonymity they offer. Requesting registration details and transaction history is part of their proactive approach to address tax compliance issues in the crypto space.
Other Crypto Entities Obliged to Share Information
Kraken is not the only crypto entity required to share information with the IRS. Coinbase, Circle, and Poloniex have also provided user identities to the IRS in the past. These platforms received John Doe summonses and were compelled to disclose information about US taxpayers who conducted crypto transactions valued at least $20,000.
Increased Regulatory Efforts by US Authorities
The US regulators are using their authority more frequently to investigate and prosecute cryptocurrency tax evasion. The creation of a dedicated office for cryptocurrency enforcement by the IRS in 2022 is evidence of this. Taxpayers are now receiving warning letters about the tax implications of cryptocurrency transactions.
IRS Can Obtain Transaction Information from Exchanges
Cryptocurrency users need to be aware that the IRS has the authority to obtain transaction information from exchanges and other crypto businesses. Failure to report cryptocurrency income or gains can result in penalties and interest.
Hot Take: Increased Scrutiny on Crypto Users and Exchanges
With the IRS’s continued efforts to obtain user data from cryptocurrency exchanges like Kraken, it is clear that there is an increased focus on tax compliance in the crypto space. Users should be cautious about their transactions and ensure they comply with tax regulations to avoid penalties and interest. As more regulations are implemented, it is likely that regulatory crackdowns will become more frequent. This underscores the importance of understanding the legal implications of engaging in cryptocurrency transactions and staying updated on regulatory developments.
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