The IRS won a victory in its attempt to obtain information related to virtual currency transactions from exchanges in the case of In re Tax Liabilities of John Does.[1] 

The IRS has sought to serve a “John Doe” summons to Payward Ventures Inc. d/b/a/ Kraken and its subsidiaries for information related to customers of the exchange.  The Court initially balked at the request, asking the IRS to show cause why the petition to serve the summons should not be denied for being overly broad.[2]

The IRS responded by narrowing the scope of the request and providing additional information to justify the items remaining as requested information.  The Court allowed the IRS to move forward at this point to serve the summons, though the exchange or customers are still allowed to file additional arguments regarding the validity of the request.[3]

While the decision published by the Court was short on details, the U.S. Department of Justice published a news release that did give more details on what was being requested.[4]  The release stated:

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.

…

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.[5]

[1] In re Tax Liabilities of John Does, US District Court, Northern District of California, Case No. 3:21-cv-02201, May 5, 2021, https://www.taxnotes.com/research/federal/court-documents/court-opinions-and-orders/irs-can-serve-john-doe-summons-on-kraken-crypto-exchange/5jwk6 (retrieved May 9, 2021)

[2] In re Tax Liabilities of John Does, US District Court, Northern District of California, Case No. 3:21-cv-02201, May 5, 2021

[3] In re Tax Liabilities of John Does, US District Court, Northern District of California, Case No. 3:21-cv-02201, May 5, 2021

[4] “Court Authorizes Service of John Doe Summons Seeking Identities of U.S. Taxpayers Who Have Used Cryptocurrency,” Department of Justice News Release, May 5, 2021, https://www.justice.gov/opa/pr/court-authorizes-service-john-doe-summons-seeking-identities-us-taxpayers-who-have-used-1 (retrieved May 9, 2021)

[5] “Court Authorizes Service of John Doe Summons Seeking Identities of U.S. Taxpayers Who Have Used Cryptocurrency,” Department of Justice News Release, May 5, 2021