President Joe Biden is giving the Internal Revenue Service (IRS) additional funding to address the crypto market, and he wants the tax regulator to apply some traditional standards to crypto exchanges.
The Treasury has released a report detailing tax compliance measures aimed at closing the tax gap, which is the difference between taxes owed to the government and taxes actually paid. Some of the proposed measures are aimed at cryptocurrency, including a requirement that crypto exchanges report gross receipts and purchases.
The report calls virtual currencies a “significant concern” for tax evasion, especially as the market grew to $2 trillion in the past year before dropping below that figure in yesterday’s crash. It specified that it’s hard to detect illegal activity using cryptocurrency in general, including tax evasion, and that burden isn’t going away.
The report said that an increase in the number of ways people are able to hide income is encouraging fewer people to comply with the rules. It highlighted not only traditional methods of doing so, such as using offshore accounts, but also moving taxable assets into the crypto economy.
For that reason the President’s proposal includes additional resources for the IRS to address crypto reporting, as well as a new reporting regime that will also cover crypto exchanges and custodians. It calls for businesses receiving crypto to report on transactions larger than $10,000 — a standard that already exists for cash transactions.
“Despite constituting a relatively small portion of business income today, cryptocurrency transactions are likely to rise in importance in the next decade, especially in the presence of a broad-based financial account reporting regime,” said the report.
To increase the visibility of these transactions, banks will supply the IRS with additional information on financial accounts for tax purposes, including information related to crypto transactions, through a reporting framework. The proposal aims for that to take effect in 2023.
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