Most people assume an IRS John Doe summons sails through court. The judge sees a government petition, nobody is there to argue the other side, and the order gets signed. Usually that is close to right.

The Kraken petition in 2021 is the exception worth knowing, because it shows exactly where the statute bites. It also tells you who was covered, which is what most readers actually want to know.

The petition

The case is In re Tax Liability of John Does, No. 21-cv-02201-JCS, in the United States District Court for the Northern District of California. The United States petitioned to authorize service of an IRS John Doe summons on Payward Ventures Inc., doing business as Kraken, and its subsidiaries, under IRC 7609(f), “to aid in assessing the potential tax liability of Kraken users,” as the court put it.

The petition was supported by a declaration from a supervisory internal revenue agent. That is standard. IRC 7609(h)(2) says the court decides “solely on the petition and supporting affidavits,” ex parte.

March 31, 2021: the order to show cause

On March 31, 2021, Chief Magistrate Judge Joseph C. Spero issued an order to show cause why the petition should not be denied.

He did not reject the whole idea. The order says the United States “has likely made a sufficient showing of the first three elements of the statute to warrant issuance of at least some form of summons.” In other words: an ascertainable group, a reasonable basis to believe the group may have failed to comply, and information not readily available elsewhere. Those boxes were likely checked.

The problem was scope. The order says the court “has concerns, however, with respect to scope.” Beyond basic registration, identification and transaction information, the proposed summons sought categories like “complete user preferences,” “any other records of Know-Your-Customer due diligence,” and “all correspondence between Kraken and the User or any third party with access to the account.”

The judge found that the agent’s explanations for some categories rested on “conclusory assertions” that the information “may be relevant” to verifying identity or revealing other accounts.

The Coinbase precedent did the work

The order leaned on the earlier Coinbase case from the same court. It described Judge Jacqueline Scott Corley’s 2017 ruling as rejecting the IRS position that similarly broad categories were relevant, and holding that the IRS “should first review basic user information and transaction histories before determining whether further subpoenas” were necessary. See what the Coinbase court enforced.

Then it tied the concern to the statute. The United States was ordered to show cause why the petition should not be denied “for failure to meet the ‘narrowly tailored’ requirement of 26 U.S.C. § 7609(f).” Its response, which could include an amended petition or summons, was due April 14, 2021, and had to address specifically why each category was narrowly tailored, including whether the more invasive categories could wait until after the IRS reviewed basic account information and transaction histories.

Why that sentence in 7609(f) matters

The narrow-tailoring requirement is the last sentence of IRC 7609(f). It says the IRS “shall not issue any summons described in the preceding sentence unless the information sought to be obtained is narrowly tailored to information that pertains to the failure (or potential failure)” of the group to comply with the tax provisions identified.

That language gave the judge a statutory hook. Without it, the inquiry would look more like the general relevance test from United States v. Powell, 379 U.S. 48 (1964), which asks whether the inquiry “may be relevant” to a legitimate purpose. With it, the government has to justify the breadth of each category, even in an ex parte proceeding.

The result: authorized, after narrowing

On May 5, 2021, Judge Spero entered an “Order Granting Narrowed Petition.” It recites that the United States had filed a response “narrowing the proposed summons and further explaining its need for the information it seeks,” and it grants the petition “as modified,” allowing service of a summons consistent with that response, “without prejudice to any argument that Kraken or its users might raise in a motion to quash.” In re Tax Liability of John Does, No. 3:21-cv-02201-JCS, Dkt. 9 (N.D. Cal. May 5, 2021).

The court record I reviewed does not show what Kraken ultimately produced or when, so I will not guess at it here. The authorization itself is what matters for your planning.

How Kraken compares to Coinbase

The two cases ran in the same federal district, four years apart, and they ended in roughly the same place. In Coinbase, the IRS narrowed its request during an enforcement fight with the exchange, and the court then refused several categories. In Kraken, the court raised the scope concerns itself, before the summons was ever served, in an ex parte proceeding where the exchange was not a party.

That difference is worth noticing. It means the narrow-tailoring rule added to IRC 7609(f) in 2019 is something judges apply on their own initiative, not only when an exchange hires lawyers to object. It is a modest protection, but it is real.

What did not change is the core: identity, tax ID, and transaction records for users above a dollar threshold. Every crypto John Doe summons the government has announced has reached that core.

There is also a timing lesson. The Kraken authorization covered transactions through 2020 and came in 2021. The IRS was reaching back one to five years. Anyone who assumed that trading on a large U.S. exchange was invisible until information returns arrived learned otherwise. For years before Form 1099-DA, the summons process was how the IRS caught up, and the years it reached into were exactly the ones people had stopped thinking about.

Who was covered

The government’s petition defined the group as United States persons who directly or indirectly had authority over any combination of Kraken accounts “with at least the equivalent of $20,000 in value of transactions (regardless of type) in cryptocurrency in any one year, for the period January 1, 2016 through December 31, 2020.” No. 3:21-cv-02201-JCS, Dkt. 1. If that describes you, you were in the group the court authorized the IRS to pursue.

That does not mean the IRS has examined you, or will. It means you should assume your identity and transaction records were within reach, and plan as though they were produced.

What to do with that information

Work the same checklist as any summons window:

  • Download whatever Kraken history you can still access for 2016 through 2020.
  • Match it, year by year, to what you reported. Include crypto-to-crypto trades. The IRS has said since Notice 2014-21 that virtual currency is property, and its 2019 letters explicitly told taxpayers that exchanging one virtual currency for another is a reportable disposition.
  • Figure out which years are open. The general three-year period in IRC 6501(a) has likely run for accurate-enough returns from those years, but no-return years stay open under IRC 6501(c)(3), and the six-year rule in IRC 6501(e) applies to substantial omissions. A John Doe summons can also suspend limitations under IRC 7609(e)(2) if the exchange’s response is unresolved six months after service.
  • Correct open years where the reporting was wrong. Get advice first if the amounts are large.

The bigger lesson

Judges do read these petitions. The Kraken order shows that the narrow-tailoring rule has teeth, and that the default the courts prefer is identity plus transactions first, more later if justified.

But do not mistake a trimmed summons for protection. Identity plus transactions is all the IRS needs to compare your trading to your return. The fight over correspondence and user preferences never decided whether you would be found. It decided how much else the IRS would read once it found you.

If you want the legal framework in one place, start with how John Doe summonses work.