Kraken to Release Crypto Transactions to IRS
In order to comply with a court order, Kraken announced it will provide information directly to the IRS surrounding certain users and transactions. This mirrors a similar ruling in 2017, where Coinbase was ordered to provide similar user information to the IRS. The ruling marks another step towards the “crypto crackdown” promised by the IRS.
Who is affected?
Any user that transacted more than $20,000 in cryptocurrency on the exchange, in a given year, will have their total transaction figure reported to the IRS. For now, Kraken will apply this threshold to the 2016-2020 tax years.
The $20,000 threshold represents gross activity on the exchange. Which means, even if you recognized a capital loss, your transaction information can still be provided to the IRS.
Since this threshold includes all activity, it would also apply to anyone who used Kraken to purchase crypto to deposit or withdraw from online gaming sites. Even if you only used the exchange as a way of facilitating online gambling funding, you would fall within the scope of the court order.
What information will be provided to the IRS?
If you meet the $20,000 threshold from any year between 2016-2020, Kraken will provide:
Name
Date of birth
Taxpayer ID
Mailing address
Crypto transaction history for year(s) in question
If affected, how will you be notified?
The IRS has not announced how affected taxpayers will be notified, but in 2017, Coinbase users were sent Letter 6173, 6174 and 6174-A. The letters outlined the IRS was notified of certain crypto activity and asked to verify any tax years in question included proper reporting for these transactions.
It is important to remember that you still may receive a notice from the IRS, even if you correctly reported all crypto activity with your original filing.
What should you do?
If you meet the above criteria, it is best to take a proactive approach. Gather your crypto transactions and determine if they were reported correctly on your tax return. This may entail meeting with your tax professional to ensure you are in compliance. It is best to confirm all returns are accurate, especially with increased IRS scrutiny.
If you can confirm your returns are accurate, no further action is required. If you or your tax professional identified unreported transactions, you need to address the issue before the IRS attempts to do so on your behalf. This will require filing amended returns for the year(s) in question.
I’ve found that some people like to take a “wait and see” approach to certain tax matters. Don’t do this. If you think the new reporting requirement affects you, proactively begin gathering your records and meeting with your tax professional. The IRS could identify tens of thousands of taxpayers through these requests and you do not want to be playing catch-up with an understaffed IRS.