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Kraken Must Comply with the IRS' “John Doe” Summons Targeting Cryptocurrency Investors

News, Offshore Account Update

Posted in on November 17, 2023

More than two years after approving the IRS' “John Doe” summons targeting Kraken customers’ personal information and transaction data, a federal court has compelled Kraken to comply. While Kraken has disputed the IRS' authority to issue the summons, the court that initially authorized the summons in May of 2021 has now stated that Kraken must supply the requested information in order to avoid being held in contempt of court.

Pursuant to the court’s order, Kraken must provide personal information and transaction data to the IRS for all customers who executed more than $20,000 in cryptocurrency transactions between 2016 and 2020. According to the IRS' petition asking the court to enforce the summons, the agency intends to use this information to “identify U.S. taxpayers that have transacted in cryptocurrency . . . and who may have failed to report such transactions in compliance with internal revenue laws.” In other words, IRS criminal tax audits will almost certainly be forthcoming and targeted Kraken customers may be at risk for financial penalties and federal prison time.

IRS, Cryptocurrency & Kraken: Key Information for the Platform’s Investors

Now that a federal court has ordered Kraken to comply with the IRS' “John Doe” summons, the platform’s investors must address the very real possibility of facing an IRS audit. The IRS has been cracking down on cryptocurrency-related tax evasion in recent years, and while Kraken fought the IRS' summons, other platforms have complied with similar requests from the agency—and their compliance has led to intensive taxpayer scrutiny.

With this in mind, here are a few key facts for Kraken’s cryptocurrency investors:

  • Voluntary Compliance is Only an Option Until the IRS Initiates an Audit – Voluntary compliance, whether through a corrective filing or the IRS' Voluntary Disclosure Program, can mitigate the consequences of federal tax law violations. However, a taxpayer’s compliance is no longer considered “voluntary” once the IRS initiates an audit or investigation.
  • IRS Audits Can Lead to Civil or Criminal Enforcement – IRS audits and investigations can expose cryptocurrency investors to both civil and criminal penalties. All tax law violations can trigger civil enforcement, while allegations of willful tax evasion can lead to criminal prosecution by the U.S. Department of Justice (DOJ).
  • An IRS Criminal Tax Attorney Can Help, if You Act Promptly – Regardless of your individual circumstances, if you are facing IRS scrutiny (or are at risk of facing IRS scrutiny), an experienced criminal tax attorney can help. However, unnecessary delays can limit the options that you and your attorney have available, so it is important that you schedule a consultation as soon as possible.

Contact Virginia IRS Criminal Tax Attorney Kevin E. Thorn for More Information

If you need to know more about the IRS' efforts to target Kraken’s customers (or other cryptocurrency investors), we encourage you to contact us promptly. To request a confidential consultation with Virginia IRS criminal tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, call 703-752-3752 or tell us how we can reach you online now.

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