Kraken Pushes Back on IRS “Treasure Hunt” for Crypto User Information

Kraken, the cryptocurrency exchange, is pushing back against the Internal Revenue Service (IRS) of the US, stating that the government agency’s requests for information about the exchange’s users amount to an “unjustified treasure hunt.”

After failing to negotiate a narrower inquiry with the IRS, Kraken has requested a federal court in San Francisco to order the IRS to back off. The IRS is investigating users who might be underreporting their tax liability.

In a petition filed in February, the IRS said it wants to identify Kraken accounts that conducted at least $20,000 of cryptocurrency trading in any single year from 2016 to 2020. However, Kraken argues that the IRS has gone beyond the boundaries set by a US District Judge in a similar fight with Coinbase six years ago. Kraken argued in a court filing that “Rather than abide by Coinbase’s ground rules, the IRS doubles down, making even more expansive requests and relying on a thinner rationale.”

In the Coinbase case, the IRS reduced its initial request, but Coinbase continued to resist. Judge Jacqueline Scott Corley ultimately ruled that the summons targeting over 14,000 of the exchange’s users was legitimate, as the IRS had a legitimate interest in investigating taxpayers who may not be reporting their Bitcoin gains. Kraken’s lawyers say the IRS “wants more—and for a much bigger universe of users.” Kraken agreed to pay $30 million in February to settle allegations by the Securities and Exchange Commission (SEC) that its staking service was an illegal sale of securities.

Corley has scheduled a hearing next month to hear arguments in the Kraken case, which is United States of America v. Payward Ventures Inc., 23-mc-80029, US District Court, Northern District of California (San Francisco). Kraken is one of the top crypto exchanges globally, with a daily trading volume of approximately $650 million, according to CoinMarketCap.

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