Crypto traders with $20,000 or more in transactions on the U.S.-based exchange Kraken may soon see their trading information handed over to the Internal Revenue Service.
The U.S. tax agency had previously requested user information from Kraken, but the exchange refused to comply, leading the IRS to ask a federal judge in February to enforce a summons issued to Kraken’s holding company, Payward Ventures.
On Friday, after months of back and forth, the judge sided with the agency, ruling the summons should be enforced.
“The IRS is conducting an investigation to identify U.S. taxpayers who have used cryptocurrency to determine whether they have complied with the internal revenue laws,” concluded the judge. “In furtherance of that investigation, this court approved the service of a summons to Payward Ventures.”
In opposing the agency’s summons, Kraken had said that the IRS’s inquiry was an “unjustified treasure hunt.” And in a statement regarding the judge’s decision, a spokesperson said the exchange fought the “IRS because they sought intrusive and unnecessary information about U.S. clients, including IP addresses, employment information, sources of wealth, net worth, and banking details.”
In light of the ruling, the exchange is now obliged to turn over approximately 160 million transaction records and provide information about 59,351 accounts, but the judge told the IRS it wasn’t entitled to information from Kraken’s due diligence questionnaires or anti-money laundering investigations. Kraken’s lawyers argued that this was an undue burden, but, the judge wrote, “a summons seeking relevant records will not be denied just because the summons seeks production of (or a search through) a great many records or will result in significant expenditure of the recordkeeper’s time and money.”
The IRS’s win follows a series of enforcement actions the federal government has taken against Kraken and other crypto exchanges amid a broader crackdown on crypto in 2023.
After the fall of FTX, the Securities and Exchange Commission launched a broadside against the crypto firms Gemini and Genesis. It then targeted Kraken, announcing a $30 million settlement with the exchange for its operation of a staking feature that promised customers yields in what the SEC alleged was akin to an unregistered offering of securities. As part of the settlement, Kraken admitted no wrongdoing.
And most recently, the government sued Binance and Coinbase, two of the world’s largest crypto exchanges, for allegedly selling unregistered securities. Amid the U.S. spree of crypto enforcement actions, firms like Kraken and Coinbase have looked abroad, securing licenses in Ireland and establishing derivatives exchanges in Bermuda and Singapore.
Update, July 3, 2023: This article has been updated with a comment from Kraken.