Does Kraken Report to the IRS?

Crypto exchange Kraken is set to share certain past user data with the IRS in compliance with a court order it received in June. This development has raised concerns among Kraken's US users, particularly those with transactions exceeding $20,000 in any single year from 2016 to 2020.

In this article, we dive into the details of Kraken's data-sharing obligations, what kind of user data will be disclosed to the IRS, and how this may affect your tax liabilities.

Yes, Kraken shares data with the IRS and will be sharing past user data as well. Kraken's retroactive data-sharing with the IRS stems from a legal battle initiated by the tax agency in May 2021.

The IRS sought to serve a John Doe summons on Kraken and its subsidiaries to uncover potential tax evaders in the crypto space. This summons was prompted by the belief that Kraken users were not fully complying with their tax obligations.

In June, a federal court ruled in favor of the IRS, mandating Kraken provide specific user information. Kraken has since notified affected US users about the impending data-sharing, which began in November of 2023.

The court order requires Kraken to provide the IRS with profile information and transaction histories of clients who conducted transactions exceeding $20,000 in any single year between 2016 and 2020. This includes sensitive information such as names, birthdates, taxpayer identification numbers, addresses, phone numbers, email addresses, and detailed transaction records.

While the IRS initially sought more extensive data, including users' IP addresses, employment details, sources of wealth, net worth, and banking information, Kraken managed to persuade the court to limit the scope of the information to be shared.

As a result, the number of affected clients has been substantially reduced from the IRS' initial request and now totals 42,017 individuals, according to the June court order.

With the impending IRS data-sharing, Kraken users need to understand how their cryptocurrency transactions are taxed. The US treats crypto as property for tax purposes, so when you sell or exchange your cryptocurrencies on Kraken, you may incur capital gains or losses.

The tax implications of your transactions depend on various factors, including the duration you held the assets, the profit or loss incurred, and your overall tax bracket. It's advisable to consult a tax professional and use crypto tax software like ours at TokenTax to accurately calculate your tax liabilities and ensure compliance with tax regulations.

If your Kraken transactions exceeded $20,000 in any single year between 2016 and 2020, you are among the individuals whose data Kraken will retroactively share with the IRS. 

It's essential to ensure you've accurately reported your crypto transactions on your tax returns for the specified years in order to avoid potential issues with the IRS, including audits, fines, or other penalties.

If you've failed to properly report crypto on past tax returns, don't panic. You're able to amend past returns, and it’s better to file crypto taxes late than not at all. And TokenTax can help.

TokenTax is a crypto tax calculator and full-service accounting firm that can assist you in correctly filing your crypto taxes, regardless of your trading activities or location. TokenTax offers features such as data import, API and wallet integrations, and the tax reports you need to help you effectively manage your crypto tax liability.

Critically for those impacted by the retroactive Kraken reporting, TokenTax can also help you amend past returns. Failure to report crypto taxes can have serious consequences, including fines, audits, and other penalties. If you’re affected by the Kraken disclosures and may not have filed properly in the past, our crypto tax professionals are here to help.

The IRS will use the information provided by Kraken to identify individuals who may have underreported or failed to report their crypto transactions.

The tax agency aims to ensure that cryptocurrency users comply with tax regulations and pay the appropriate amount of taxes on their crypto activities, so it could use the Kraken disclosure to trigger a crypto tax audit for non-compliant Kraken users.

Here are frequently asked questions about Kraken taxes and crypto taxes generally.

Do I have to pay taxes on Kraken?

Yes, you are required to pay taxes on your crypto transactions conducted on Kraken. Cryptocurrencies are considered taxable assets in the US, and capital gains or losses from crypto trading are subject to taxation.

Do I have to pay taxes if I receive crypto?

Yes, receiving crypto is a taxable event. When you receive crypto, the IRS considers it taxable income based on the fair market value at the time of receipt. You need to report this income on your tax return and pay taxes accordingly.

Can the IRS track your crypto?

The IRS can track cryptocurrency transactions, as evidenced by the court order mandating Kraken to share user data. While the blockchain can offer a degree of anonymity, the IRS uses methods to identify individuals who engage in crypto activities and work to ensure tax compliance. Exchanges like Coinbase also report to the IRS.

It's best to assume the IRS has full transparency into your crypto activity, so it's essential to accurately report your crypto transactions and comply with tax regulations to avoid potential issues with the IRS.