This article briefly:
·On June 30, a U.S. court ruled that Kraken must provide its user information to the U.S. Internal Revenue Service (IRS) to investigate those who underreport their taxes.
The court ruled that the IRS had legitimate grounds to obtain information from a cryptocurrency exchange due to the high volume of activity on the platform.
·President Joe Biden wants the government to close any loopholes that could result in low tax rates for cryptocurrency investors.
A U.S. District Court has ordered Kraken to provide the personal information of its users to the Internal Revenue Service (IRS) as part of an investigation by the agency into underreporting taxes.
In a ruling on June 30, District Judge Joseph Spero ended Kraken’s fight to block the IRS from accessing its user data. The order will require the cryptocurrency exchange to provide information on all accounts that had at least $20,000 in cryptocurrency trading volume between 2016 and 2020.
Judge Spero directed Kraken’s parent company, Payward Inc., to provide information such as user names, taxpayer identification numbers, phone numbers, emails, addresses and other transaction information.
Court justifies ruling against Kraken
The judge said the IRS had legitimate reasons to obtain the information because the volume of trading activity on Kraken far exceeded the returns taxpayers filed related to their cryptocurrency investments.
“The government has a legitimate purpose in seeking the materials described in the subpoena. As described above, the subpoena is issued in cooperation with an IRS investigation to identify U.S. persons who transacted in cryptocurrency between 2016 and 2020 and to correct their federal income tax liabilities.”
In his ruling, Judge Spero cited an IRS agent who claimed Kraken had more than 4 million customers and that more than $140 billion was traded on the platform between 2011 and 2017. Kraken is one of the top cryptocurrency exchanges in the United States, processing more than $500 million in trades in the past 24 hours, according to BeInCrypto data.
The judge also agreed that Kraken’s lack of third-party information reporting resulted in a significant underreporting of revenue.
At the same time, the court rejected the IRS’s request for information related to the anti-money laundering investigation and other details from Kraken’s due diligence questionnaire, such as users’ net worth, sources of income, and employment.
In 2021, the IRS issued a John Doe subpoena to Kraken, demanding that the exchange provide information about its users. The platform refused to comply with the request, forcing the federal agency to file a petition in court.
What does this mean for the crypto industry?
While this is not the first time the IRS has requested user information from exchanges for tax purposes, the timing of this decision is important as the crypto industry faces multiple challenges from U.S. regulators.
In addition to this, recent comments from U.S. President Joe Biden indicate that the administration wants to close all loopholes that could lead to low tax rates for cryptocurrency investors. In a June 28 speech, Biden said his administration will make the tax system fair “by eliminating loopholes for cryptocurrency traders and hedge fund managers.”