Transactions over $20,000 need to be reported, Kraken refuses to comply with IRS subpoena

The Internal Revenue Service (IRS) has requested Kraken to provide user-related transaction data for nearly eight years, but Kraken has refused the IRS summons, arguing that the IRS's definition of potential tax evaders is too broad, deeming it an unjustified treasure hunt.

Kraken Subpoenaed by IRS

Kraken had already received a John Doe subpoena from the IRS back in 2021, requesting user data for those whose transactions exceeded $20,000 between 2016 and 2020.

"John Doe" is a tool used by the IRS to investigate taxpayers with uncertain identities, and it requires court authorization. Former IRS Commissioner Chuck Rettig stated:

The John Doe summons is a step for the IRS to identify taxpayers who have not properly reported virtual currency transactions. We will enforce when we find systemic noncompliance and fraud.

Kraken Refuses to Cooperate with IRS

When Kraken received the subpoena in 2021, they refused to cooperate. Despite several discussions with the IRS, no agreement was reached, and the IRS issued another John Doe subpoena in February this year. The subpoena again requested user data for transactions exceeding $20,000 between January 1, 2016, and December 31, 2020.

Kraken believes that the IRS's request goes far beyond the six-year scope and has refused to provide user data beyond user names, birthdates, addresses, phone numbers, emails, and taxpayer IDs.

According to a report by Bloomberg, Kraken argues that data beyond identity information is essentially unnecessary and may not aid the IRS investigation, deeming the IRS's request an unjustified treasure hunt.

Kraken also referenced a similar subpoena issued by the IRS to Coinbase in 2016, where the court approved the subpoena only after significantly narrowing the search scope. Kraken stated:

The IRS did not adhere to the basic principles of a subpoena similar to the Coinbase case, not only demanding several pieces of data that were rejected in the Coinbase subpoena but also relying on weaker reasons and making more requests aimed at a broader user search scope.

Kraken emphasized that the IRS's broad definition of potential tax evaders is burdensome, with data requests four times more extensive than in the Coinbase case, yet unable to determine definitively if users have potential tax obligations.

A spokesperson for Kraken stated that one of Kraken's principles is to safeguard user safety and privacy, and the representative from the U.S. Department of Justice Tax Division did not respond to this.