The United States Internal Revenue Service (IRS) has been given the authority by a federal court in the Northern District of California to get the identity of USA taxpayers who transacted more than $20,000 in cryptocurrencies in crypto exchanges between 2016 and 2020.
This is a major development since cryptocurrency transactions via blockchain networks were originally designed to be anonymous and without any interference from governments. However, although the transactions provide anonymity, the process of buying and selling does not. Also, most of the cryptocurrency exchanges are centralized and thus must have a Know Your Customer (KYC) process which identifies the people who are using their services.
But it is the rapid rise of cryptocurrencies like bitcoin as methods of payment and investment assets besides being used primarily as digital currencies that is making them a target of the taxman.
On Wednesday, the federal court in the Northern District of California authorized the IRS to specifically gather the identity of individuals who traded using the services of Payward Ventures, Inc. and its subsidiaries, which include the likes of Kraken, a crypto exchange headquartered in San Francisco, California.
“Gathering the information in the summons approved today is an important step to ensure cryptocurrency owners are following the tax laws,” said Acting Assistant Attorney General David A. Hubbert of the Justice Department’s Tax Division. “Those who transact with cryptocurrency must meet their tax obligations like any other taxpayer.”
At the beginning of April, it should be remembered that the IRS was also granted an order to issue John Doe Summons on Circle and its subsidiaries for individuals who transacted through them between 2016 and 2020.