On May 5, 2021 the federal court in Northern District of California has authorized the Internal Revenue Service (IRS) to serve a “John Doe Summons” on the digital currency exchange company Payward Ventures Inc., and Subsidiaries d/b/a Kraken, requesting information about U.S. taxpayers who have conducted at least $20,000 in transaction in cryptocurrency from 2016 to 2020.
The court order seeks to ensure cryptocurrency owners are following the tax laws. “Those who transact with cryptocurrency must meet their tax obligations like any other taxpayer”, said Acting Assistant Attorney General David A. Hubbert of the Justice Department’s Tax Division.
The order does not allege that Kraken has engaged in any misconduct with its digital exchange currency business, rather it focuses on identifying the U.S. taxpayers who used their services, along with other documents relating to their cryptocurrency transactions.
The guidance on the use of virtual currencies was issued by IRS in Notice 2014-21, describing how existing general tax principles apply to transactions using virtual currency. For federal tax purposes, virtual currency is treated as property, thus tax principles applicable to property transactions apply to transactions using virtual currency.