Judge Declines IRS Request for Customer Information from Kraken Exchange

IRS requests for “John Doe Summons” from Kraken cryptocurrency exchange, but the judge declines the summons stating the request is “too broad.” Circle had received a similar request too.

The U.S. Internal Revenue Service (IRS) is looking to obtain customer records from San Francisco-based crypto exchange, Kraken, from 2016 to 2020, in a ‘request to obtain information’ filing. The filing requests Kraken to release information on all U.S. taxpayers who held at least $20,000 on the exchange at any point in the past five years.

The IRS successfully sent out a similar request, a so-called John Doe summons, to Circle on Thursday to release U.S. client information. The authority explains the information will help identify Americans who have failed to report their taxes correctly.

The John Doe summons has become common as regulators seek to pick out taxpayers who do not report crypto taxes. The IRS uses John Doe summons as a tool to conduct investigations on unregistered taxpayers to know their names or identify the taxpayer. However, a judge only accepts these summons when it is probable that a group of people has evaded tax and broken tax laws and such information is not accessible by any means.

However, Judge Spero declined the IRS request to a John Doe summon stating the regulator’s request is “overbroad,” asking them to refile the case with a narrower ask. In a statement, Judge Spero stated IRS “must specifically address why each category of information sought is narrowly tailored to the IRS's investigative needs.” The IRS will need to review basic account information and transaction histories to get more invasive and all-encompassing information about the Kraken clients.

The narrowed version should be filed in the courts by April 14, the court order further reads.

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