A federal court in the Northern District of California have authorized the United States Internal Revenue Service (IRS) to identify taxpayers that have used a cryptocurrency exchange. In particular, the IRS wants to know about taxpayers who conducted at least $20,000 in crypto transactions from 2016 to 2020. 

Cryptocurrencies were originally designed to be an anonymous payment method that could not be regulated by governments. But as they have become a widespread payment instrument as well as an investment asset for those who want to protect their savings and/or make some additional money, they quickly emerged on the radar of tax collecting agencies, such as the IRS. Although crypto transactions are still anonymous, the process or buying or selling cryptocurrencies is not. To that end, it is not surprising that the IRS want to know about U.S. taxpayers who used cryptocurrencies in the past few years. 

For now, the court in California authorized the IRS to identify Americans who have used the services of Payward Ventures Inc. and its subsidiaries, such as Kraken, a digital currency exchange headquartered in San Francisco, California. The IRS is seeking information about taxpayers who conducted at least the equivalent of $20,000 in transactions. Meanwhile, on April 1, 2021, a federal court in the District of Massachusetts granted an order for the IRS to serve a similar John Doe summons on Circle, an exchange from Boston. In the future, the IRS may be authorized to identify customers of other crypto exchanges.  

“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.” 

It remains to be seen how serious the IRS about taxing owners of cryptocurrency is. There are hundreds of crypto exchanges not only in the U.S., but around the world and theoretically an American taxpayer could use any of such services.