A federal court ordered crypto exchange Kraken to turn over account and transaction information to the IRS, which said it needed that information to see if any of the exchange's users had underreported their taxes.

The IRS filed a court petition in the Northern District of California in February, moments after the crypto exchange settled charges with the U.S. Securities and Exchange Commission alleging that its staking service violated securities law. The tax enforcer alleged that it had issued a summons to Kraken in 2021 that the exchange failed to comply with, and was trying to check for tax liabilities for users who transacted in crypto between 2016 and 2020.

According to Friday's order, Kraken must turn over information for users who transacted with more than $20,000 over the course of a calendar year for that year, including the user's name (and any pseudonyms), birthdate, taxpayer identification number, address, phone number, email address and a host of other documents.

Kraken will also have to provide blockchain addresses and transaction hashes that's already part of transaction data it can share, and it may produce raw data for the IRS.

Judge Joseph Spero, who oversaw the case, appears to have rejected the IRS' effort to also receive employment information and source of wealth from Kraken. The judge denied several of the IRS' requests outright.

"The Court must determine whether the Government’s summons is narrowly tailored, that is, whether it is 'no broader than necessary to achieve its purpose,'" the judge wrote in his analysis of some of the IRS's requests. "The Court finds that to the extent the first three requests are aimed at establishing the identities of the Kraken account holders who fall within the Doe definition, the information sought in these requests is much broader than what is necessary to achieve that purpose for the vast majority of Doe users."

Kraken was standing up for its customers, the company said.

"We fought the IRS because they sought intrusive and unnecessary information about U.S. clients, including IP addresses, employment information, sources of wealth, net worth, and banking details," a spokesperson from Kraken said in a statement. "We appreciate that the Court rejected all these demands, recognizing that the IRS requests were 'much broader than what is necessary.'"

Jesse Hamilton contributed reporting.