Starting in November, Kraken, a cryptocurrency exchange based in San Francisco, will begin sharing the personal information of over 40,000 users with the United States Internal Revenue Service (IRS) to comply with a court order issued in June.
This change will affect American users whose transactions exceed $20,000 on the platform from 2016 to 2020. Kraken notified its U.S. users of this development, stating that the information covered by the court's order will be shared in early November 2023.
In May 2021, Kraken and its subsidiaries received an IRS summons, known as a "John Doe" summons, requesting a substantial amount of data related to U.S. customers. The IRS aimed to address tax evasion in the cryptocurrency space, where individuals were accumulating wealth without reporting it to tax authorities.
The International Monetary Fund (IMF) has also highlighted the challenges posed by crypto assets due to their decentralized and pseudonymous nature, suggesting that tax systems need to adapt.
The IMF emphasized that crypto transactions are pseudonymous, meaning they use public addresses that are challenging to link to individuals or entities, potentially facilitating tax evasion. The IMF acknowledged that centralized exchanges are more accessible targets for implementing know-your-customer checks and already possess extensive customer data.
Initially, Kraken resisted disclosing user data but was compelled to do so by a court order in June. The number of affected users was reduced to approximately 42,000 from an initial request for data from nearly 60,000 users.
Kraken will be required to provide user information such as names, dates of birth, Tax IDs or social security numbers, addresses, and contact details including phone numbers and emails, along with transaction history from 2016 to 2020.
However, the exchange clarified that it will not share data on IP addresses, net worth, bank information, employment details, or sources of wealth. Kraken assured users that sensitive account information is encrypted for security.
Despite these measures, the IMF warned that determined tax evaders may turn to centralized exchanges located outside the U.S. to keep tax authorities uninformed. Additionally, there is concern that reporting requirements could lead people to conduct transactions through decentralized exchanges or peer-to-peer trades, which are harder for tax administrators to monitor.