IRS acquires Circle customer records; wants access to Kraken user data

  • The United States Internal Revenue Service is aiming to acquire customer records from cryptocurrency exchange Kraken. 
  • This follows a court authorization permitting the federal agency to receive data from Circle’s customers. 
  • According to the US IRS, the acquisition move is to expose individuals who do not report correct crypto transactions. 

The US Internal Revenue Service (IRS) got authorization from the court to secure Circle’s customers’ records and are now focused on getting Kraken’s user data.

IRS to use a narrowed scope for refiling

The IRS’ received the court order last week from a Massachuset federal high court to serve summons to Circle Internet Financial Inc. The John Doe summons as is referred to by federal agencies is a term allowing investigations to continue even with an unknown taxpayer’s identity.

Circle and its subsidiaries like Poloniex were required to present documents to the IRS to check for the tax payment history of the digital currency users.

The commissioner of the IRS, Chuck Rettig said that the John Doe summons is the IRS tool to find people who do not report their virtual currency transactions properly and that the federal agency will apply rule of law if they find fraud or systemic non-compliance.

The department of justice IRS also filed the same kind of report with the United States District in the Northern District of California for authorization to open the customer records of cryptocurrency exchange Kraken.

 The federal agency also desires to find the US taxpayers who between 2016 to 2020 carried out cryptocurrency transactions of about $20000. An IRS agent Karen Concotta further stated that the request opens the channel of an investigation that seeks to point out and correct federal income tax shortcomings.

The court’s response to the request was that the government was overreaching with their request and needed to specify the requests presented in the refiling.

The court ruled that basic registration, transaction information, and identification were the only important requests and the rest were too far-reaching. 

The court maintained that the request is inclusive of “large categories of information,” like “total user preferences, every record of know your customer due diligence,” and “correspondence between Kraken and users or third parties with access to the account on the account.”

In the IRS defence, they maintained that the information may prove useful towards discovering a user’s account or multiple accounts. The judge’s response to the Federal agency was that ” the review should first start with basic user information and transaction histories before deciding whether other subpoenas -either to the individual users or the cryptocurrency exchange or users- were relevant.”

The IRS by April 14 will have to file an edited version of their request.

Cryptocurrency exchanges are not foreigners to John Doe summons. From 2013 to 2015, the IRS had also tried to use John Doe Summons to retrieve user records from Coinbase, which they fought against.

IRS cautions crypto holders to remit taxes

The IRS decided in 2014 that Bitcoin and other cryptocurrencies will be regarded as “property,” qualifying it for capital gains tax like the conventional assets like bonds and stocks. They outlined a few cases where digital currency-related activities can be regarded as income.

 Cryptocurrency capital gains tax is placed on the trading of the new asset class for Fiat, crypto use as goods and services, and trading or exchanging two cryptocurrencies.

Meanwhile, events tagged under income tax include receiving cryptocurrencies from an airdrop, crypto mining from block rewards,  interest accrued from DeFi lending,transaction fees, and crypto received as a form of payment for work done.

In 2019, the IRS sent over 10,000 letters to taxpayers who have refused to report cryptocurrency income and complete their tax payment