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The Internal Revenue Service (IRS) searches for customer records from another crypto exchange. After getting the green light to serve Circle with a so-called John Doe summons yesterday, the Justice Department asked the tax regulator to send the same request to Kraken.
The Department of Justice’s Taxation Division this week filed the petition with the United States District Court for the Northern District of California. A John Doe subpoena requires the approval of a judge because it allows the IRS to obtain information on taxpayers who have not yet been identified.
If approved, the IRS will serve the request on Payward Ventures Inc. and its affiliates, also known as Kraken, for information on users who have reached $ 20,000 in transactions. In a statement attached to the petition request, IRS agent Karen Cincotta said the request was part of an investigation to “identify and correct federal income tax” for crypto users of 2016 to 2020.
The court has already responded, saying the government’s request is “too broad” and it will have to dismiss it narrowly.
Requirement
The IRS is looking for basic information about registration, identification, and transactions, which the court seems to find relevant. But the request also includes what the court considers to be “broad categories of information,” such as “full user preferences”, “any other Know-Your-Customer due diligence record” and “correspondence. between Kraken and the user or any third party having access to the account relating to the account. “
The IRS argues that these broader categories of information may be relevant in identifying a user’s account or multiple accounts. But Judge Jacqueline Scott Corley is not convinced.
In a response to the IRS called a show cause order, the judge said the IRS “should first review basic user information and transaction history before determining whether other subpoenas – either to the exchange of cryptocurrency or to individual users – were necessary. ”
What happens after
The IRS must now file a “narrowly tailored” version of its claim by April 14.
“ Any such response should specifically explain why each category of information sought is closely tailored to the IRS’s investigative needs, including whether requests for information on more invasive and comprehensive categories of information might. postponed until the IRS has reviewed basic account registration and transaction information. stories, ”read the judge’s order.
Coinbase fought a similar request from the IRS in 2016, arguing that the regulator took too broad a stance. The IRS restricted its summons during the legal battle.
Since then, the IRS has taken a firm line against failing to report crypto holdings, asking taxpayers if they have conducted taxable activity in crypto at the top of Form 1040. It also sent out several rounds of letters in 2020. reminding holders to report their crypto.
© 2021 The Block Crypto, Inc. All rights reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial or other advice.
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