Kraken Exchange to submit customer data to IRS after Biden’s call to eliminate crypto tax loopholes – FXStreet

• The court has subpoenaed Kraken to turn over user data to the IRS, citing “legitimate purpose.”
• The revenue service is interested in accounts holding at least $20,000 in annual crypto trading between 2016 and 2020.
• The move comes as President Biden looks to eliminate crypto tax loopholes, reminding users of the essence of decentralization. 

Kraken Exchange is the latest victim of regulation by enforcement, only this time by the United States Internal Revenue Service (IRS). Based on recent activities, the clampdown is not just limited to exchanges and cryptocurrency firms but extends to platform users as President Joe Biden’s administration looks to eliminate all crypto tax loopholes.

Also Read: Bitcoin sustains above $30,000 even as Biden calls to eliminate crypto tax loopholes

Kraken to submit user data to the IRS

Kraken, a centralized cryptocurrency exchange, has received stark orders from a US Judge to hand over the personal data of its customers to the IRS as part of an investigation dating back to the beginning of the year. The exchange tried to fight the subpoena from early February and as far as 2021, but the latest developments show the tax officer has won the battle.

Citing Judge Joseph C. Spero, who issued to order:

The Government has a legitimate purpose for seeking the materials described in the summon. As discussed above, the summons was issued in connection with an investigation by the IRS to determine the identity and correct federal income tax liability of U.S. persons who conducted transactions in cryptocurrency during the period 2016-2020.

Specifically, the government agency wants accounts holding a minimum of $20,000 in annual crypto transactions between 2016 and 2022. As part of the submission, Kraken will disclose the user names and pseudonyms, if any, their birthdates, physical addresses, phone numbers and email addresses, and taxpayer details.

The IRS also wants blockchain addresses and transactions to build its case against those who would be found in violation against the country’s taxation laws. Based on the order, the judge only drew the line where the IRS wanted employment details of Kraken users and their source of wealth.

Kraken Exchange, first victim of Biden’s enforcement

Kraken had long fought against this summon, with February reports indicating that the exchange had challenged attempts by the tax officer to identify the exchange’s cryptocurrency customers. The battle goes back as early as 2021. After many years of winning the battle, Kraken has finally lost the war, and it comes a day after President Biden issued a directive to eliminate crypto tax loopholes.

In the June 29 report, Biden articulated, “loopholes in the cryptocurrency taxation space would be eliminated for traders and hedge fund managers.” The president also underscored his past statements about new taxation rules against cryptocurrency wash trading.

For the layperson, wash trading refers to a process wherein investors or traders buy or sell the same security simultaneously with the intention of manipulating the market. The action creates a false sense of a high volume of activity within that market, thereby luring more traders or raking in profits for brokers. Noteworthy, feeding misleading information to the market is a crime.

The news is a development to reports of Biden edging toward bringing tax changes for cryptocurrency traders, who enjoyed better privileges than those trading stocks and bonds. For instance, there are no rules against wash trading for crypto trades, but the rules exist for stocks and bonds trades. Similarly, cryptocurrency traders must accept tax-deductible losses before investing, unlike the case in stocks and bonds. It all points to an unfair system, according to Biden.  

The case reminds users of the benefits of a decentralized mode of operation over a centralized one. Vitalik Buterin supports this disparity. During his comments supporting tokens hit by the SEC, the Ethereum cofounder and innovator said that the wider “centralized world” as a whole was this real enemy.

It would be interesting to see how Kraken Exchange will respond to the IRS’s order, with market players anticipating a showdown between the two. If Kraken gives in, it will hurt the position of centralized exchanges, tipping the bias further in favor of decentralized alternatives while underscoring the importance of decentralization, self-custody, and the use of DEXs.