Court authorizes IRS’s search for taxpayers using cryptocurrency

May 5 (UPI) — A federal court on Wednesday authorized the Internal Revenue Service to serve a John Doe Summons on a San Francisco-based cryptocurrency exchange in order to obtain information about U.S. taxpayers.

A Judge in the Northern District of California entered the order to allow the federal agency to obtain the records of Americans who conducted a minimum of $20,000 in transactions in cryptocurrency through the Kraken exchange in any year between 2016 and 2020, the Justice Department said in a press release.

“Gathering the information in the summons approved today is an important step to ensure cryptocurrency owners are following the tax laws,” said Acting Attorney General David A. Hubbert of the Justice Department’s Tax Division.

The Justice Department explained that the summons does not allege wrongdoing on the part of Kraken or its parent company, Payward Ventures Inc., but it is a tool that permits the IRS to obtain information of all taxpayers in a certain group to see if they are complying with internal revenue laws.

“There is no excuse for taxpayers continuing to fail to report the income earned and taxes due from virtual currency transactions,” IRS Commissioner Chuck Rettig said. “This John Doe Summons is part of our effort to uncover those who are trying to skirt reporting and avoid paying their fair share.”

The United States petitioned for the summons in late March, with the court ordering it to show cause over concerns of the summons’ breadth.

In response, the United States filed a narrowed proposed summons and explained its need for the information it seeks before the petition was granted as modified on Wednesday, with the court stating, “further disputes as to the scope of the summons would benefit from adversarial briefing.”

A Kraken spokesperson told UPI in an emailed statement that “[t]houh the posture of this case has not given Kraken an opportunity to weigh in, we share similar concerns” over the summon’s scope.

“One of Kraken’s guiding principle is maintaining the security and privacy of its client accounts,” the spokesperson said.

The IRS defines crypto or virtual currency as a digital representation of value that can be sold or exchanged for goods or services or held as an investment, which can be taxed by the U.S. government.

Because cryptocurrencies use cryptography to secure transactions, they can be difficult to track and taxpayers may be using them to hide taxable earnings, the Justice Department said.

According to court documents, many people in the cryptocurrency space have accounts at more than one exchange and the IRS’s investigation is not only focused on identifying those who are tax non-compliant with accounts at one exchange like Kraken but to identify tax non-compliant individuals at that exchange who may have multiple accounts at other exchanges.

The order was issued after a similar John Doe Summons was granted in early April for the Circle cryptocurrency exchange.

“Those who transact with cryptocurrency must meet their tax obligations like any other taxpayer,” Hubbert said.



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