Federal Court Orders Kraken to Comply with IRS' “John Doe” Cryptocurrency Summons

Posted in Offshore Account Update on November 17, 2023 | Share

A federal court recently ordered Payward Ventures Inc. and its subsidiaries, which operate the Kraken cryptocurrency exchange, to comply with a “John Doe” summons issued by the Internal Revenue Service (IRS) in 2021. This is the second time a federal court has ruled in favor of the IRS in its efforts to obtain customer information from Kraken, and while the court’s ruling limits the scope of the summons, it still compels Kraken to turn over customers’ personally identifying information and transaction histories.

As the IRS stated in its petition seeking enforcement of the summons, it intends to use this information “identify U.S. taxpayers that have transacted in cryptocurrency at the specified floor level through Kraken at any time during the period specified in the John Doe summons and who may have failed to report such transactions in compliance with internal revenue laws.” The “specified floor level” is $20,000 in total transaction volume, and the “period specified in the John Doe summons” is 2016 through 2020. This covers a substantial percentage of Kraken’s customers—all of whom may now be at risk of facing IRS criminal tax audits related to their cryptocurrency trading activity.

Kraken Must Disclose Customers’ Personal Information and Transaction Data

Under the federal court’s June 30, 2023 order, Kraken must comply with the IRS' “John Doe” summons. While Kraken delayed compliance by more than two years through its legal challenges, other platforms’ similar challenges have failed, and it appears that Kraken now has little choice but to comply. Assuming Kraken complies, this means that the IRS will have access to the following information for all Kraken customers who conducted more than $20,000 in total cryptocurrency transaction value between 2016 and 2020:

  • Name
  • Birth date
  • Taxpayer identification number
  • Physical address
  • Telephone number
  • Email address
  • Customer transaction records

As noted above, the IRS intends to use this information to conduct criminal tax audits and target Kraken customers for tax evasion and other tax-related crimes. As a result, many Kraken customers may soon find themselves in need of an experienced IRS criminal tax attorney. While voluntary disclosure is an option in some cases, taxpayers’ disclosures are no longer considered “voluntary” once the IRS opens an inquiry.

IRS, Cryptocurrency & Kraken: Understanding Customers’ Legal Risks

What are the risks for Kraken customers who have not met their cryptocurrency-related federal tax obligations? Tax evasion is a serious federal crime that carries both fines and prison time. Taxpayers can also be held liable for back taxes, interest and other monetary penalties. IRS criminal tax audits may lead to other charges as well, and these charges could further enhance the penalties that are on the table.

Request an Appointment with Washington D.C. IRS Criminal Tax Attorney Kevin E. Thorn

If you invested in cryptocurrency through Kraken and have concerns about facing IRS scrutiny, we encourage you to contact us promptly for more information. To request an appointment with Washington D.C. IRS criminal tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, call 202-349-4033 or contact us confidentially online today.

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