Kraken Fights Back Against IRS – Refuses to Reveal Crypto Users’ Identities

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Key takeaways:

  • The IRS’s request has been rejected by Kraken in an application to the federal court in San Francisco.
  • The IRS’s request for data on bitcoin exchange customers, the exchange claimed in a court document, amounted to an “unjustified treasure hunt.”

The U.S. Internal Revenue Service (IRS) has demanded that crucial exchange user data be provided to the court. Crypto exchange Kraken is fighting back. The IRS’s request for client information was described by the exchange as an “unjustified treasure hunt.”

According to a Bloomberg report, the cryptocurrency exchange has asked a federal court in San Francisco to intervene in the case and order the IRS to back off. The IRS summons from February requesting more user information to identify Kraken accounts that engaged in at least $20,000 worth of cryptocurrency trading in any given year between 2016 and 2020 prompted Kraken to push back against the government.

The line was drawn in a related lawsuit in 2019, but the IRS decided to up the ante by making more demands and relying on weaker justifications instead of following the fundamental guidelines of that case’s finding. According to Kraken’s filing:

“Rather than abide by Coinbase’s ground rules, the IRS doubles down, making even more expansive requests and relying on a thinner rationale,”

The exchange said that the tax agency had violated the guidelines established by U.S. District Judge Jacqueline Scott Corley in its request, citing the Coinbase case from 2017. After Coinbase’s repeated denials in the Coinbase case, the agency reduced its initial demand. Judge Corley said that the summons issued to the exchange’s more than 14,000 clients wasn’t overly intrusive, however, as the IRS had a good reason for wanting to investigate taxpayers who might not be revealing their Bitcoin gains.

The IRS has allegedly gone “far beyond” its intrusive summons, according to the Kraken lawyers, and its requests for consumer information are unjustified. In its efforts to combat the increasing regulatory scrutiny by American regulators, Kraken joined Coinbase. The U.S. Securities and Exchange Commission and Coinbase are now engaged in a legal dispute regarding Coinbase’s provision of cryptocurrency staking services.

According to the SEC, companies like Kraken and Coinbase, which offer staking services, are breaking the rules on securities. While the San Francisco-based cryptocurrency exchange reached a $30 million settlement with the SEC for providing staking services, it has chosen to go to court for its IRS dispute.

For crypto firms in the United States, the increased regulatory scrutiny has been a significant source of anxiety. Brian Armstong, the CEO of Coinbase, and Jeramy Allaire, the CEO of USD Coin issuer Circle, among others, have warned that the regulatory agencies’ increasing resistance may drive emerging cryptocurrency businesses to relocate outside.

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