In a significant development in the cryptocurrency sector, Kraken, a leading U.S. cryptocurrency exchange, has announced it will disclose specific user data who conducted transactions over $20,000 between 2016 and 2020 to the Internal Revenue Service (IRS) in November, 2023.
This decision comes in the wake of a prolonged legal battle over crypto tax reporting that began in May 2021.
Who will be Affected?
In its search for potential tax evaders, the IRS initially requested a wide range of Kraken's U.S. client records.
However, standing firm on its commitment to safeguard client privacy, Kraken resisted the sweeping demands, leading to an extended litigation process.
While the exchange managed to limit the scope of the IRS's request, the court eventually mandated Kraken to furnish details and transaction records of users who had transacted over $20,000 in any single year spanning from 2016 to 2020.
What Details Need to be Shared?
As per the court's directive, Kraken is set to provide the IRS with user details, including names, birthdates, taxpayer IDs, addresses, phone numbers, email addresses, and transaction histories for the stipulated years. This move is slated for early November 2023.
What’s Next?
Kraken has urged its affected clients to liaise with their respective tax consultants to address any potential tax implications stemming from their cryptocurrency transactions during the specified years.
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If you are using Kraken, you can leverage Kryptos to stay on top of your taxes – simply auto-sync all your transactions, analyze your portfolio and calculate your crypto taxes in minutes.
For a step-by-step guide to connect Kraken with Kryptos, check out our Kraken integration guide.
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FAQs
1. Why is Kraken sharing user data with the IRS?
Kraken is complying with a court order that mandates the disclosure of specific user data to the IRS, stemming from a legal battle that began in May 2021.
2. Which users will be affected by this disclosure?
Users who have conducted transactions exceeding $20,000 in any single year from 2016 to 2020 will have their details shared with the IRS.
3. What kind of user information will Kraken provide to the IRS?
Kraken will share names, birthdates, taxpayer IDs, addresses, phone numbers, email addresses, and transaction histories for the specified years.
4. How can affected users address potential tax implications?
Kraken advises its impacted clients to consult with tax specialists to understand and address any potential tax liabilities related to their cryptocurrency transactions during the mentioned years.
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| Step | Form | Purpose | Action |
|---|---|---|---|
| 1 | 1099-DA | Reports digital asset sales or exchanges | Use to fill out Form 8949. |
| 2 | Form 1099-MISC | Reports miscellaneous crypto income | Use to fill out Schedule 1 or C. |
| 3 | Form 8949 | Details individual transactions | List each transaction here. |
| 4 | Schedule D | Summarizes capital gains/losses | Transfer totals from Form 8949. |
| 5 | Schedule 1 | Reports miscellaneous income | Include miscellaneous income (if not self-employment). |
| 6 | Schedule C | Reports self-employment income | Include self-employment income and expenses. |
| 7 | Form W-2 | Reports wages (if paid in Bitcoin) | Include wages in total income. |
| 8 | Form 1040 | Primary tax return | Summarize all income, deductions, and tax owed. |
| Date | Event/Requirement |
|---|---|
| January 1, 2025 | Brokers begin tracking and reporting digital asset transactions. |
| February 2026 | Brokers issue Form 1099-DA for the 2025 tax year to taxpayers. |
| April 15, 2026 | Deadline for taxpayers to file their 2025 tax returns with IRS data. |
| Timeline Event | Description |
|---|---|
| Before January 1, 2025 | Taxpayers must identify wallets and accounts containing digital assets and document unused basis. |
| January 1, 2025 | Snapshot date for confirming remaining digital assets in wallets and accounts. |
| March 2025 | Brokers begin issuing Form 1099-DA, reflecting a wallet-specific basis. |
| Before Filing 2025 Tax Returns | Taxpayers must finalize their Safe Harbor Allocation to ensure compliance and avoid penalties. |
| Feature | Use Case Scenario | Technical Details |
|---|---|---|
| Automated Monitoring of Transactions | Alice uses staking on Ethereum 2.0 and yield farming on Uniswap. Kryptos automates tracking of her staking rewards and LP tokens across platforms. | Integrates with Ethereum and Uniswap APIs for real-time tracking and monitoring of transactions. |
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| Advanced Tax Categorization | Carol earns from staking Polkadot and yield farming on Aave. Kryptos categorizes her rewards as ordinary income and investment income. | Uses jurisdiction-specific rules to categorize rewards and guarantee compliance with local tax regulations. |
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| Real-Time Alerts and Updates | Frank receives alerts on contemporary tax regulations affecting DeFi. Kryptos keeps him updated on relevant changes in tax laws. | Observe regulatory updates and provide real-time alerts about changes in tax regulations. |
| Seamless Tax Reporting Integration | Grace files taxes using TurboTax. Kryptos integrates with TurboTax to import staking and yield farming data easily. | Direct integration with tax software like TurboTax for smooth data import and multi-jurisdictional reporting. |
