IRS gets access to crypto exchange Circle’s user data, targets Kraken next

Shortly after getting a court authorization to obtain records of cryptocurrency exchange Circle’s customers, the US Internal Revenue Service (IRS) is now seeking to get access to similar data from trading platform Kraken.

“Those who transact with cryptocurrency must meet their tax obligations like any other taxpayer,” said acting assistant attorney general David Hubbert of the Justice Department’s Tax Division, adding, “The Department of Justice will continue to work with the IRS to ensure that cryptocurrency owners are paying their fair share of taxes.”

Earlier this week, a federal court in Massachusetts approved the IRS’s request to serve a John Doe summons on “Circle Internet Financial Inc., or its predecessors, subsidiaries, divisions, and affiliates, including Poloniex LLC (collectively ‘Circle’).”

With this move, the IRS wants to identify the U.S. taxpayers who transferred $20,000 or more via transactions that involved cryptocurrencies between 2016 and 2020. According to the regulator, it needs the exchanges’ documents to check if those crypto traders are paying their taxes in full.

“Tools like the John Doe summons authorized today send the clear message to U.S. taxpayers that the IRS is working to ensure that they are fully compliant in their use of virtual currency,” said IRS Commissioner Chuck Rettig, adding:

“The John Doe summons is a step to enable the IRS to uncover those who are failing to properly report their virtual currency transactions. We will enforce the law where we find systemic non-compliance or fraud.”

Kraken is next in line

After Circle, the Department of Justice has filed a similar request for the tax regulator with the United States District Court for the Northern District of California, seeking to reveal customer records from Kraken.

However, this time around, the court denied the initial filing, arguing that it is “overboard” and the IRS needs to narrow down its request, The Block reported yesterday.

Namely, the court stated that “complete user preferences,” “any other records of Know-Your-Customer due diligence,” and “correspondence between Kraken and the User or any third party with access to the account pertaining to the account” are all too “broad categories of information.”

The judge’s order reportedly said:

“Any such response must specifically address why each category of information sought is narrowly tailored to the IRS’s investigative needs, including whether requests for more invasive and all-encompassing categories of information could be deferred until after the IRS has reviewed basic account registration information and transaction histories.”

Now, the IRS has until April 14 to refile a new “narrowly tailored” version of its request.

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