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US federal judge rules Kraken must hand over user information to IRS

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The U.S. District Court for the Northern District of California has ruled that digital asset exchange Kraken must provide the Internal Revenue Service (IRS) with account and transaction information covering the period from 2016 to 2020.

The U.S. tax agency requested user information from Kraken in May 2021 to identify accounts that conducted at least $20,000 in digital asset trading in any year between 2016 and 2020. The exchange refused to comply, which led the IRS to ask a federal judge this February to enforce the summons—which was issued to Kraken’s holding company, Payward Ventures.

In response, Kraken and Payward Ventures filed an opposition to this on April 21, arguing that it should not be required to comply with “the enormous burdens” imposed by the IRS’s request for user data. The exchange claimed at the time that the IRS’s “too broad” demand to present exchange user information to the court was an “unjustified treasure hunt.”

Last Friday’s ruling by the District Court rejects Kraken’s argument and enforces the IRS’s summons. The exchange will now be obliged to hand over around 160 million transaction records and provide information on 59,351 accounts to the IRS.

“The Court concludes that this request is not overbroad. Nor is it unduly burdensome,” said Judge Joseph Spero in his ruling.

Judge Spero did deny certain requests made by the IRS, including its attempt to obtain employment information, clients’ net worth, and sources of wealth, but the decision largely favored the Government’s position.

The ruling comes amid a crackdown on the digital asset industry by U.S. regulatory agencies, with both the Securities Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) bringing actions against leading companies in the last few months.

In March, the CFTC filed a civil suit against Binance and its founder, Changpeng Zhao, accusing them of “willful evasion of federal law and operating an illegal digital asset derivatives exchange.”

Things went from bad to worse for the world’s largest digital asset exchange when on June 6, the SEC filed 13 charges against Binance and its founder, claiming it had orchestrated “an extensive web of deception, conflicts of interest, lack of disclosure and calculated evasion of the law.”

The same day the SEC filed these charges, it also sued exchange Coinbase (NASDAQ: COIN) for allegedly violating several securities laws, including operating as an unregistered exchange.

Kraken is just the latest digital asset company to feel the sting of the post-FTX regulatory tightening as authorities seek to weed out misconduct in the space.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple,
Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.

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