In a landmark decision with far-reaching implications, a federal judge has ruled against cryptocurrency exchange Kraken, resulting in which rich crypto traders are expected to face IRS scrutiny. The ruling comes as the IRS seeks to tighten its grip on the rapidly expanding world of digital currencies, where billions of dollars are being traded daily.
The Internal Revenue Service (IRS) may soon obtain the trading information of cryptocurrency traders who have conducted transactions of $20,000 or more on the U.S.-based exchange Kraken.
Judge Rules in Favor of IRS, Enforces Summons Against Kraken’s Payward Ventures
Despite Kraken’s initial refusal to comply with the U.S. tax agency’s request for user information, the Internal Revenue Service (IRS) sought assistance from a federal judge in February to enforce a summons issued to Kraken’s holding company, Payward Ventures. After a prolonged period of deliberation, the judge ultimately ruled in favor of the IRS on Friday, determining that the summons should be enforced on Rich crypto traders to face IRS scrutiny.
“The judge concluded that the IRS is conducting an investigation to identify U.S. taxpayers who have utilized cryptocurrency and determine their compliance with internal revenue laws,” stated the judge. In pursuit of this investigation, the court authorized the issuance of a summons to Payward Ventures.
Kraken had strongly opposed the IRS’s summons, referring to the agency’s inquiry as an “unjustified treasure hunt.” Following the judge’s decision, a spokesperson for the exchange expressed their resistance to the IRS, citing their objection to the agency’s request for intrusive and unnecessary information about U.S. clients. This information included IP addresses, employment details, sources of wealth, net worth, and banking information.
Judge Orders Kraken to Provide Extensive Transaction Records, Exempts Due Diligence Questionnaires
Following the ruling, Kraken is now obligated to surrender around 160 million transaction records and disclose information related to 59,351 accounts. However, the judge clarified that the IRS was not entitled to access Kraken’s due diligence questionnaires or anti-money laundering investigations. Kraken’s legal team contended that this would impose an excessive burden, but the judge stated that a summons requesting relevant records should not be denied solely based on the volume of records or the substantial cost and effort required by the recordkeeper.
The victory for the IRS comes in the wake of a string of enforcement measures undertaken by the federal government against Kraken and other cryptocurrency exchanges as part of a wider crackdown on the crypto industry in 2023.
U.S. Government Expands Crypto Crackdown, Targets Binance, and Coinbase
Following the downfall of FTX, the Securities and Exchange Commission (SEC) initiated a regulatory assault on crypto companies Gemini and Genesis. Subsequently, the SEC turned its attention to Kraken, announcing a $30 million settlement with the exchange over its operation of a staking feature that allegedly resembled an unregistered offering of securities. Notably, Kraken did not admit any wrongdoing as part of the settlement.
In a recent development, the government has filed lawsuits against Binance and Coinbase, which are among the largest cryptocurrency exchanges globally, alleging the sale of unregistered securities. As the United States continues its vigorous pursuit of enforcement actions in the crypto industry, companies such as Kraken and Coinbase have sought opportunities overseas, obtaining licenses in Ireland and establishing derivatives exchanges in Bermuda and Singapore.
The recent ruling against Kraken, which forces the exchange to hand over user information to the IRS, marks a significant milestone in the rich crypto traders to face IRS scrutiny. This decision sets a precedent for the IRS to pursue tax evasion cases within the cryptocurrency space and underscores the growing regulatory oversight in the industry. With the government’s focus on enforcing tax compliance and cracking down on unregistered securities, major exchanges like Binance and Coinbase have faced legal challenges. As the crypto market evolves, it is clear that regulatory measures are being implemented to ensure transparency, accountability, and tax compliance in this rapidly expanding sector.
Also Read: Gemini CEO Slams Grayscale Bitcoin Trust as a “Toxic Product”.
