In a recent written order issued by the Northern District of California court, crypto exchange Kraken has been instructed to disclose the user details, including account and transaction data, to the revenue regulatory agency Internal Revenue Service (IRS). The IRS argued that obtaining the user data will enable the agency to identify trading platforms engaging in tax cheats quickly.
The IRS team provided the details that Kraken should provide to enable the agency to take action to exchange with unreported tax cases.
Significance of User Data in Supporting Compliance
According to the IRS, the San Francisco-based crypto exchange was required to submit user data for any transaction amounting to more than $20 000 within the taxation period. The Kraken report should disclose the name of the user, phone number, email, date of birth, and taxpayer registration numbers, among other details.
At the beginning of February, the U.S. Security Exchange Commission (SEC) charged Kraken for offering unregistered crypto staking services. Following regulatory pressure posed by SEC, Kraken agreed to settle a court fine amounting to $30 million and uphold compliance with the securities law by suspending the staking product.
Afterward, the IRS submitted its petition to the Northern District of California court. In the petition, the IRS confirmed it had taken legal action against Kraken in 2021 for contravening the law. The IRS team requested for court permission to investigate whether the crypto transactions conducted through the Kraken exchange from 2016 to 2020 met the tax requirements.
IRS Involvememt in Crypto Sector
The IRS submission will require the crypto exchange to release a well-detailed report outlining the blockchain addresses and critical hashes required to complete crypto transaction. The agency might also demand Kraken to provide further raw data on any transaction.
A judge at the Northern District of California court, Joseph Spero was against the agency’s idea to obtain employment and wealth details from Kraken. Judge Spero rejected some of the proposals submitted by the IRS.
He argued that some of the proposals submitted by the agency require the court to evaluate whether the IRS report conforms with the government law. This implies that the IRS proposal should support attaining the main objective while upholding compliance with the law.
Scope of the IRS Report
The court report illustrated that three proposals presented by the IRS on identifying Kraken users were broad. Additionally, the court noted that the three proposals required the user to provide more identity information.
Guided by ‘Doe’ legislation, the court noted that most of the users might fail to provide the identity data requested by the agency.
The court ruling released on Friday came when the U.S. clampdown on crypto is still widening. Last month the U.S. Securities and exchange commission (SEC) filed a lawsuit against Binance and Coinbase.