Biden and IRS Put Pressure on Crypto Tax Avoidance, Transactions Over $10,000
The IRS has been increasing its efforts to clamp down on crypto tax dodgers, and Biden’s recent budget proposal could further tighten regulations surrounding virtual currency.
The 2022 budget proposal from the Biden administration calls for more comprehensive reporting of not only selling, but purchasing of assets. In the “Greenbook” explanations for fiscal year 2022, Biden’s administration outlines how they plan to alter reporting requirements. They state that reporting would be required not only for gross receipts but also gross purchases, physical cash as well as payments to and from foreign accounts and transfer inflows and outflows. Similar reporting requirements they state would apply to crypto asset exchanges and custodians. Reporting requirements would also apply in cases in which taxpayers buy crypto assets.
The reporting environment for crypto has been somewhat of a gray area for several years. The volatility of digital currencies can change the value within seconds, but the IRS will now be concerned with something called the “cost basis.” This means that the IRS will be mainly concerned with how much the digital currency cost at the time you purchased it, and then the price at which it was sold. For example, if you purchased bitcoin at $5,000 and sold it at $10,000, this means you will have to pay taxes on $5,000 worth of gains.
The Greenbook also puts provisions in place that would make it difficult to spend digital assets without getting reported. Part of the proposal would require businesses to report all cryptocurrency transactions valued at more than $10,000. This means that even if you held post-tax crypto in your business’ account, if you spent more than $10,000 in one transaction, it would need to be reported to the IRS. Another potential rule would require crypto custodians and exchanges to report data on user accounts which conduct at least $600 worth of inflows or outflows each year.
Cryptocurrency, by nature, is designed in such a way that the identity and location of the seller or buyer is not necessary. This creates a myriad of implications for governments that often use the tracking of physical currency to surveil possible money laundering, criminals, drug trafficking and other illegal activity. Monitoring the frequency and size of transactions, even relatively small ones up to $600, can help governments compare where money is moving and how.
Massive tax avoidance is also an impetus for the crackdown on crypto assets.
IRS chief Charles Rettig told CNBC that the country is losing about a trillion dollars every year in unpaid taxes, and he credits this growing tax gap at least in part to the rise of the crypto market. They add that the White House wants to give the IRS an extra $80 billion and new powers to crack down on crypto tax dodgers.
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Last updated: July 15, 2021