Kraken, a leading cryptocurrency exchange, has begun informing its user base via email that it would be obliged to share certain customer information with the Internal Revenue Service (IRS).
The disclosure was made through an official statement on Thursday, October 26, following the IRS’s issuance of a summons in May 2021, in which they requested access to an array of records and data held by Kraken.
Kraken revealed that it had vigorously contested the IRS’s demands in court, successfully reducing the number of affected clients and the scope of data to be disclosed. Nevertheless, Kraken is obligated to provide the IRS with profile information and transaction records for customers who engaged in transactions exceeding $20,000 annually between 2016 and 2020.
This includes users’ names, birthdates, tax identification numbers, addresses, contact information, and transaction histories. The exchange further noted it intends to share this information with the IRS in early November 2023, as per the court’s order.
The legal battle between Kraken and the IRS concluded in July 2023, with Kraken publicly stating its objections to the IRS’s pursuit of what it deemed “intrusive and unnecessary information” regarding its U.S. clients. The company expressed concerns that the leaked data could expose its customers to identity theft and other risks.
The original IRS order had demanded Kraken to surrender a broader set of data, including users’ IP addresses, banking details, employment information, and sources of wealth, in addition to the information required in the latest order.
Meanwhile, following the latest development, James Yochum a Certified Public Accountant and the owner of Corridor Consulting, strongly advised those affected to take swift action.
“Getting ahead of this and correcting course before the IRS initiates contact with thousands of taxpayers in the coming months will be wise IRS and many tax pros will be too busy to handle your situation and when it comes to tax debt issues time is BIG money.” Tweeted Yochum.
That said, Kraken is not the only cryptocurrency company to face such IRS demands. Coinbase and Circle have experienced similar summons in the past. However, it’s essential to note that crypto investors in the United States are generally obligated to report all cryptocurrency activity in their tax returns, irrespective of specific actions taken by regulatory authorities.
These developments occur in the context of recent rule proposals from the Financial Crimes Enforcement Network (FinCEN) aimed at enhancing data analysis, record-keeping, and transaction history reporting. However, various stakeholders in the crypto sector have raised concerns about the scope of information that tax authorities and government agencies aim to collect.
Notably, some have argued that the expansion of data collection efforts may have significant implications for the privacy of Bitcoin users, even those who deliberately avoid regulated or KYC-compliant services in an attempt to maintain their anonymity.