The court order, stemming from a legal battle that began in May 2021, requires Kraken to provide details of customers’ transactions exceeding $20,000 between 2016 and 2020. The information includes users' account histories, personal details such as names, dates of birth, Tax IDs,...
This isn't the first instance of a crypto exchange being mandated to share user data with the IRS. In 2018, Coinbase informed 13,000 of its users that it would provide their taxpayer IDs, names, birth dates, addresses, and transaction records from 2013 to 2015 to the tax authority. The U.S. Court of Appeals is currently reviewing a related case where a Coinbase user, James Harper, is appealing against the IRS to limit the government's access to users’ transaction histories.
In September 2022, a federal court authorized the IRS to issue a so-called John Doe summons for taxpayers who may have failed to report and pay taxes on cryptocurrency transactions.
As described further in the petition, though taxpayers are required to report any associated profits and losses on their crypto dealings, the IRS’s experience “has demonstrated significant tax compliance deficiencies relating to cryptocurrencies and other digital assets.”
Based on its recent experiences with cryptocurrencies, the IRS believes that crypto transactions are not being properly reported on tax returns. Among other reasons, the authority says there is no third-party reporting to the IRS on such transactions, and previous summonses served on other cryptocurrency dealers have revealed significant underreporting of such transactions.