United States-based cryptocurrency exchange Kraken has announced its compliance with a court order to share the data of approximately 42,000 users with the U.S. Internal Revenue Service (IRS). The information, which includes a range of user records and data, is set to be transmitted to the IRS in early November.
Court Order Compels Data Sharing
Kraken’s decision to provide this user data comes in response to a court order from the U.S. District Court for the Northern District of California issued in May 2021. The court ordered Kraken to produce a wide array of records and data concerning its U.S. clients and share it with the IRS. Initially, the IRS’s demands were met with resistance from Kraken, leading to a legal battle that eventually resulted in a “substantial reduction” in the number of clients affected and the amount of client data to be shared.
The court’s directive required Kraken to provide profile and transaction data for clients who conducted transactions exceeding $20,000 during any single year from 2016 to 2020. This includes not only active traders but also those who made deposits and withdrawals without engaging in actual transactions. The data to be shared includes information such as names, dates of birth, tax identification numbers, addresses, contact information, and transaction history.
Similar Cases in the Crypto Industry
The case involving Kraken is not unique, as the U.S. Court of Appeals for the First Circuit is reviewing a similar situation involving cryptocurrency exchange Coinbase. In 2018, Coinbase informed its 13,000 affected customers that it would be providing the IRS with their taxpayer identification numbers, names, birth dates, addresses, and historical transaction records from 2013 to 2015.
One user, James Harper, has taken action to prevent the IRS from having unrestricted access to users’ transaction histories, appealing against the IRS’s demands. In October 2023, the DeFi Education Fund, a cryptocurrency advocacy group, filed an amicus brief in support of Harper’s appeal.
These cases raise significant questions regarding the privacy and data security of cryptocurrency users. The willingness of exchanges like Kraken and Coinbase to share user information with tax authorities demonstrates the increasing regulatory scrutiny in the crypto industry. As governments seek to ensure tax compliance, crypto users may find themselves facing greater exposure to government agencies’ data collection efforts. The outcomes of these cases will undoubtedly have implications for how cryptocurrency exchanges handle user data and for the broader crypto community.