IRS Intent On Cracking Kraken Cryptocurrency Investors’ Identities
The IRS is determined to crack the identities of cryptocurrency investors. They are now on the hunt toward that end with a John Doe summons. A John Doe summons gives the IRS the ability to obtain the names of all taxpayers within a clearly defined group, so long as they receive judicial approval. That’s how the IRS was able to identify 13,000 Coinbase customers back in 2018 and go after individual taxpayers for unreported cryptocurrency.
Now Kraken and Circle investors may be revealed since they are the targets of the IRS’s current crackdown efforts. So, if you’re an investor with either Kraken or Circle and you’re starting to feel a little squeamish, well, you better start thinking about how much tax you are likely to owe should they look your way.
The IRS Is Looking For “Hidden Treasure”
It sounds like a fun game, but it isn’t one you want to take lightly when the IRS gets involved. According to one industry journal, the IRS’s initiative to crackdown on cryptocurrency tax evaders is called “Operation Hidden Treasure.” The government’s interest is in casting as wide a net as possible to get as much information as possible to feed into its analytics for finding unreported cryptocurrency. They’re searching for treasure chests of any size, small, medium and large.
The Precedence Has Been Set
Once the IRS got approval for the Coinbase summons, that’s all they needed. The precedent had been established. They used that win when seeking the Kraken summons and now, they cite the Kraken summons approval as support for approving summons for other cryptocurrency firms. All crypto firms are required to send 1099s to their customers. But, of course, many of those customers fail to report any cryptocurrency on their individual or business tax forms. Thus, the John Doe summons. The IRS will go after individuals and businesses failing to report their cryptocurrency.
Crypto Could Be Kryptonite For Many Investors
As the name for their initiative signifies, the IRS expects to find millions of dollars are owed in back taxes when they crack into Kracken’s customer identity base. Maybe even billions. If you are a dabbler and you are among those customers, the IRS may hit you first because the small treasures are easier to snag. For the IRS, it’s like going after low hanging fruit. Typically, smaller investors don’t tend to have an army of lawyers at their beck and call like big institutional investors do. So while you once felt like you had financial superpowers, the IRS could turn crypto into kryptonite for you pretty soon.
Better Get Crackin’
If you are investing in cryptocurrency and have failed to report it on your 2021 federal tax return, you want to be prepared to declare it on your 2022 taxes. You want to be proactive and stay on the good side of the IRS as they embark on their treasure hunt!