IRS wins court approval to serve Kraken with a request for customer information

After a denial last month, a federal court in the Northern District of California has authorized the Internal Revenue Service (IRS) to serve an information request to Kraken. The IRS will serve the crypto exchange with a John Doe summons, which requests user information to identify crypto holding taxpayers.

The Department of Justice announced the authorization today. The request will seek information about U.S. taxpayers who conducted at least $20,000 in crypto transactions from 2016 to 2020. The IRS is seeking the information to root out those who aren't reporting their crypto holdings.

“There is no excuse for taxpayers continuing to fail to report the income earned and taxes due from virtual currency transactions,” said IRS Commissioner Chuck Rettig in the announcement. “This John Doe summons is part of our effort to uncover those who are trying to skirt reporting and avoid paying their fair share.”

Kraken is not accused of any wrongdoing. A John Doe Summons requires a judge's approval because it allows the regulator to request non-public information about taxpayers who have yet to be identified.

The IRS didn't get that approval at first. The tax agency first made the request in early April, but the court responded by saying the government's request was "overbroad." The court then mandated that the IRS refile with narrowed scope, with that new request being accepted by the court, thus allowing the IRS to move forward serving Kraken.

Coinbase fought a similar request from the IRS in 2016 when it contended the regulator's request was overbroad. A Kraken spokesperson said the firm values maintaining the security and privacy of client accounts and has "concerns" about the scope of the request.

"We understand that the Court has expressed concern over the scope of the proposed IRS Summons," said a Kraken spokesperson. "Though the posture of this case has not given Kraken an opportunity to weigh in, we share similar concerns."