Home / Kraken User Data: How to Find Out if IRS Will Come Calling After Court Orders Disclosure
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Kraken User Data: How to Find Out if IRS Will Come Calling After Court Orders Disclosure

Published July 3, 2023 9:25 AM
Teuta Franjkovic
Published July 3, 2023 9:25 AM
Key Takeaways
  • Kraken is ordered to disclose a broad range of user data.
  • IRS’ attempt to obtain job data and sources of wealth from Kraken has probably been denied.
  • A court injunction is issued as the crackdown on digital currency intensifies.

A federal judge from the United States District Court for the Northern District of California has ordered the cryptocurrency exchange Kraken to give the IRS access to user accounts and transaction data.

Kraken Must give Info on Taxable Crypto

According to the court order , anyone who dealt in cryptocurrencies between 2016 and 2020 may be liable for taxes. Every user who bought, sold, or exchanged at least $20,000 worth of Bitcoin must submit full documentation, including name, taxpayer identity number, physical address, phone number, email address, and transaction ledger.

In addition, Kraken would have to divulge transaction hashes and blockchain addresses, which are already part of the shared transaction data. The IRS might also request raw data from the exchange.

Details on Employment and Source of Money to Stay Discrete

The IRS appears to have failed in its attempt to gain job details and the source of Kraken’s money from the judge who oversaw the case, Joseph Spero. A number of the IRS’s requests were flatly rejected by the judge.

The court must determine whether the government’s summons is suitably focused, which means it should not go beyond what is required to achieve its claimed purpose, the judge said in his evaluation of some IRS demands.

The information sought in the first three requests, which are intended to identify Kraken account holders who meet the “Doe” description, is excessively wide and goes beyond what the majority of users require to prove their identities, the court’s conclusions state.

The verdict on Friday sides with the government comes as the American crackdown on cryptocurrencies intensifies. The SEC filed two separate complaints in June, accusing Binance.US and Coinbase of operating unauthorized exchanges, breaching securities laws, mishandling client funds, and deceiving investors and regulators.

Kraken and IRS – Old Antagonists

Kraken and the IRS have been at war for a time, with Kraken continually denying the IRS’s further summonses and prior information requests.

Just for a reminder, the IRS filed a court petition in the Northern District of California in February, not long after Kraken settled with the U.S. Securities Exchange Commission (SEC) for alleged violations of the Securities Exchange Act (Securities Law) relating to its staking business. The IRS asserted that it had summoned Kraken in 2021, which the exchange allegedly ignored. The IRS is currently looking into the tax liabilities of users who transacted in cryptocurrencies between 2016 and 2020.

For breaking securities law with its staking offerings, Kraken agreed to pay a $30 million fine to the SEC earlier this year and stopped offering staking to US customers.

Binance.US Might Also Fall Under IRS Probe

According to a consent decree, Binance.US and the Securities and Exchange Commission (SEC) have reached an agreement that avoids the freezing of exchange assets in exchange for more control and transparency.

The agreement states that Binance must provide the SEC with a list of every wallet or account it has managed since December 1, 2022, together with the financial institutions and account numbers associated with each one, in exactly 45 days. Additionally, Binance must give a list of any asset transfers worth more than $1,000 during the same time period, along with the identities of the receivers and the justifications for the transfers.

Whatever the case, since cryptocurrencies are no longer the newest financial asset, the IRS will closely monitor revenue from them.

Unfortunately, there is still some ambiguity surrounding cryptocurrency tax regulations. Depending on how you use Bitcoin, it can be subject to income taxes or capital gains taxes, according to the IRS.

First off, you don’t have to pay taxes on cryptocurrencies if you’re just “hodling” it. However, you might need to pay taxes on any cryptocurrency profits you make, whether through lending, selling, or staking.

You must pay capital gains taxes when you sell cryptocurrencies for a profit since the IRS considers all cryptocurrencies to be capital assets. This is precisely what occurs when you sell more traditional goods, like stocks or funds, for a profit.

Crypto Transactions Are Not Really Anonymous

One common misunderstanding among cryptocurrency investors is that since the IRS cannot see their crypto trading activity, they are not required to report it when filing their taxes.

Despite the perception that cryptocurrencies are anonymous, regulators have a variety of techniques to link online behavior to actual behavior.

Trading on centralized exchanges such as Kraken, Gemini or Coinbase necessitates the exchanges filing certain reports with the IRS. They’ll often issue you a 1099 miscellaneous form with information on any revenue you’ve made from trading cryptocurrencies on their site.

As per the Kraken website : “Kraken currently only provides a US Form 1099-MISC, a 1099-INT and 1099-NEC which is filed with the US Internal Revenue Service (IRS) and a copy is provided to you (if you are eligible). This may change in future years, as tax reporting laws are constantly changing.”

When the IRS serves subpoenas on virtual trading platforms, the behavior involving cryptocurrencies is also visible. The IRS could utilize the thousands of names contained in the files that businesses provide to the government to determine whether a particular person has disclosed trading activity to the government.

Remember that you must declare income, profits, or losses from any taxable cryptocurrency transactions even if you don’t use a big platform or believe the government won’t be able to trace your trades. This is stated on the IRS website.