Kraken Picks Customer Privacy Over IRS As It Fights Tax Compliance Dispute

San Francisco-based cryptocurrency exchange Kraken finds itself in the midst of a legal showdown with the Internal Revenue Service (IRS) as it fights against the agency’s request for user data. On its part, the IRS seeks to investigate potential tax liabilities of Kraken customers who engaged in cryptocurrency transactions between 2016 and 2020.

However, while Kraken has been ordered by the Northern District Court of California to disclose certain information, the exchange seems determined to protect its clients’ privacy and prevent potential harm. The crypto exchange argues that the IRS’s demands go beyond what is necessary and emphasized the importance of consumer security and privacy.

Kraken’s Resistance to IRS Summons

Kraken’s refusal to comply with the IRS summons has led to a legal battle between the exchange and the tax agency. The IRS aims to identify users who may have underreported their taxes, focusing on individuals who transacted more than $20,000 in cryptocurrencies within a single calendar year.

The exchange, on the other hand, is concerned about the potential exposure of its clients to identity theft and other harm if their information is leaked by the IRS.

A Kraken spokesperson stated, “We fought the IRS because they sought intrusive and unnecessary information about U.S. clients… Were this information leaked by the IRS, it would expose Kraken clients to identity theft and other harm, which Kraken prevented.”

Court Ruling and Kraken’s Dedication to Consumer Protection

A United States District Court has issued an injunction requiring Kraken to provide account and transaction data to the IRS. However, the court has denied some of the IRS’s broader requests, including demands for additional personal information such as employment details and sources of wealth.

According to Judge Joseph C. Spero’s order, “The Government has a legitimate purpose for seeking the materials described in the summons… to determine the identity and correct federal income tax liability of U.S. persons who conducted transactions in cryptocurrency during the period 2016-2020.”