Cryptocurrency exchange Kraken is taking legal action against the United States Internal Revenue Service (IRS) in response to its demands for critical user information. Kraken has labeled the IRS’s request as an “unjustified treasure hunt.”
Kraken requests San Francisco court intervention
Kraken has asked a federal court in San Francisco to step in and urge the IRS to withdraw its demands. This move comes after the IRS’s February summons, which sought additional user data to identify Kraken accounts that engaged in at least $20,000 of cryptocurrency trading per year between 2016 and 2020.
Kraken’s request cites the 2017 Coinbase case, stating that the tax agency has exceeded the guidelines established by U.S. District Judge Jacqueline Scott Corley. In the Coinbase case, the IRS reduced its initial demands following Coinbase’s persistent refusal. However, Judge Corley determined that the summons issued to over 14,000 customers were not overly intrusive, as the IRS had a legitimate reason to investigate taxpayers who may not disclose their Bitcoin gains.
Kraken’s legal team argues that the IRS has gone “far beyond” its intrusive summons and that its demands for customer information are unjustified. Kraken has joined Coinbase in resisting increasing regulatory scrutiny from American regulators. Coinbase is currently engaged in its own legal battle with the U.S. Securities and Exchange Commission (SEC) regarding crypto staking services.
Concerns over growing regulatory scrutiny
The SEC alleges that staking services offered by companies like Kraken and Coinbase violate securities laws. While the San Francisco-based crypto exchange settled with the SEC for $30 million over offering staking services, it has chosen to fight the IRS in court.
The escalating regulatory scrutiny is becoming a growing concern for crypto companies in the U.S. CEOs, including Coinbase’s Brian Armstrong and USD Coin issuer Circle’s Jeremy Allaire, have warned that increasing resistance from regulatory agencies may force emerging crypto companies to relocate overseas.