Let’s Get it Kraken - CA Court Authorizes John Doe Summons

Let’s Get it Kraken – CA Court Authorizes John Doe Summons

Court Authorizes John Doe Summons Against Kraken

Let’s Get it Kraken: Kraken is a cryptocurrency exchange which has recently gained the interest of the Internal Revenue Service. Recently, A District Court in Northern California has approved the issuance of a John Doe Summons to allow the Internal Revenue Service to seek information regarding potential US Taxpayers who have not properly reported or paid tax on cryptocurrency transactions. In recent years, the Internal Revenue Service has gotten up-to-speed on cryptocurrency, how the process works — and how to uncover transactions that were meant to be anonymous. This is the second recent John Doe summons that was issued by the courts. Moreover, a few weeks back the alleged owner a Bitcoin Fog (a company that prides itself on being able to maintain anonymity for its subscribers) was arrested at LAX.

As provided by the Department of Justice:

Court Authorizes Service of John Doe Summons Seeking Identities of U.S. Taxpayers 

      • A federal court in the Northern District of California entered an order today authorizing the IRS to serve a John Doe summons on Payward Ventures Inc., and Subsidiaries d/b/a Kraken (Kraken) seeking information about U.S. taxpayers who conducted at least the equivalent of $20,000 in transactions in cryptocurrency during the years 2016 to 2020. The IRS is seeking the records of Americans who engaged in business with or through Kraken, a digital currency exchanger headquartered in San Francisco, California.

      • “Gathering the information in the summons approved today is an important step to ensure cryptocurrency owners are following the tax laws,” said Acting Assistant Attorney General David A. Hubbert of the Justice Department’s Tax Division. “Those who transact with cryptocurrency must meet their tax obligations like any other taxpayer.”

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

      • Cryptocurrency, as generally defined, is a digital representation of value. Because transactions in cryptocurrencies can be difficult to trace and have an inherently pseudoanonymous aspect, taxpayers may be using them to hide taxable income from the IRS. On April 1, 2021, a federal court in the District of Massachusetts granted an order authorizing the IRS to serve a similar John Doe summons on Circle, a digital currency exchange headquartered in Boston.

      • Today’s order from the Northern District of California grants the IRS permission to serve what is known as a “John Doe” summons on Kraken. The United States’ petition does not allege that Kraken has engaged in any wrongdoing in connection with its digital currency exchange business. Rather, according to the court’s order, the summons seeks information related to the IRS’s “investigation of an ascertainable group or class of persons” that the IRS has reasonable basis to believe “may have failed to comply with internal revenue laws.” According to the copy of the summons filed with the petition, the IRS directed Kraken to produce records identifying the U.S. taxpayers described above, along with other documents relating to their cryptocurrency transactions.

      • The IRS has issued guidance regarding the tax consequences on the use of virtual currencies in IRS Notice 2014-21,which provides that virtual currencies that can be converted into traditional currency are property for tax purposes, and a taxpayer can have a gain or loss on the sale or exchange of a virtual currency, depending on the taxpayer’s cost to purchase the virtual currency (that is, the taxpayer’s tax basis).

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