The Biden administration wants businesses to report cryptocurrency transactions with values of at least $10,000 to the Internal Revenue Service.
“Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion,” the US Treasury Department said in its proposal for implementing the tax compliance initiatives in President Biden’s American Families Plan. The larger Biden plan still needs approval from Congress.
The Treasury document said that crypto reporting is one part of “the President’s tax compliance initiatives that seek to close the ‘tax gap’—the difference between taxes owed to the government and actually paid.” The proposal calls for a $4.5 billion investment in IT to implement a new information-reporting regime that would help close that gap, which was nearly $600 billion in 2019.
US law already “requires that trades and businesses report cash payments of more than $10,000 to the federal government,” the IRS website notes. This information “assists law enforcement in its anti-money laundering efforts” and “provide[s] authorities with an audit trail to investigate possible tax evasion, drug dealing, terrorist financing and other criminal activities,” the IRS says. The Treasury Department said it would apply that same threshold to crypto transactions under the proposed new reporting system:
Within the context of the new financial account reporting regime, cryptocurrencies and cryptoasset exchange accounts and payment service accounts that accept cryptocurrencies would be covered. Further, as with cash transactions, businesses that receive cryptoassets with a fair market value of more than $10,000 would also be reported on. Although cryptocurrency is a small share of current business transactions, such comprehensive reporting is necessary to minimize the incentives and opportunity to shift income out of the new information reporting regime.
Boosting IRS tech and enforcement
Virtual currencies “have grown to $2 trillion in market capitalization,” and the threat of illegal activity including tax evasion “is why the President’s proposal includes additional resources for the IRS to address the growth of cryptoassets,” the Treasury Department said. In a footnote, the Treasury Department cited a 2013 Michigan Law Review report that said, “To the extent that cryptocurrencies continue to gain momentum, we could reasonably expect tax evaders—who traditionally executed their tax-evasion techniques through the use of offshore bank accounts in tax-haven jurisdictions—to opt out of traditional tax havens in favor of cryptocurrencies.”
The Treasury Department said its tax enforcement plan “would more than double the IRS workforce over a decade,” Reuters wrote yesterday.
“The IRS investment plan also would replace the Treasury’s 1960s-era computer architecture with new machine-learning-capable systems that will be better able to detect suspect tax returns,” Reuters wrote, adding that, according to the Treasury, the “IRS is the only federal agency with computers that run on the antiquated Common Business-Oriented Language (COBOL) system.”
SEC chair wants crypto exchange regulation
There are also calls for new regulations on cryptocurrency exchanges to prevent investors from getting ripped off. Securities and Exchange Commission Chairman Gary Gensler said yesterday that “he would like to see more regulation around cryptocurrency exchanges, including those that solely trade bitcoin and do not currently have to register with his agency,” Reuters reported.
“This is a quite volatile, one might say highly volatile, asset class, and the investing public would benefit from more investor protection on the crypto exchanges,” Gensler said at the Financial Industry Regulatory Authority’s annual conference.
Earlier this month, Gensler told a House committee that, “right now, these exchanges do not have a regulatory framework at the SEC or at our sister agency, the Commodity Futures Trading Commission. Right now, there’s not a market regulator around these crypto exchanges and thus there’s really no protection around fraud or manipulation.” Gensler’s comments appeared in a Coindesk article.
A CNBC article yesterday said that “[i]ncreased regulation will likely upset some cryptocurrency investors, who have seen the value of bitcoin slide about 25 percent over the past month and talk of capitulation creep into online forums.” However, CNBC quoted policy analyst Ed Mills as saying that “regulation would add further legitimacy to the asset class and could provide a regulatory moat around existing cryptocurrency exchanges.”