Cryptocurrency investors who think they’re out of Big Brother’s watchful eye just got a wake-up call. The U.S. Treasury Department has decided that digital investors will now have to report any transfer of $10,000 or more to the IRS.
The IRS has been quietly working on ways it can track taxpayers who own cryptocurrencies by examining digital currency exchanges such as Coinbase. Now, it’s making it known that it won’t allow cryptocurrency investors to evade their tax responsibilities.
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Outdated IRS systems lead to billions in tax losses
In the newly released American Families Plan Tax Compliance Agenda, the Treasury Department admitted that many tax compliance issues stem from problems with the IRS’ systems. The agency said these systems are rather antiquated, with code that’s 50 years old and “lacks the ability to do what more modern technology can do.”
“Further, noncompliance has been exacerbated by enhanced opportunities to shield income from tax liability, and even from audits. These opportunities are particularly available for those in the top end of the income distribution who can avoid taxes through sophisticated strategies such as offshoring, creating complex partnership structures, or moving taxable assets into the crypto economy.”
The Treasury Department’s proposal falls under President Biden’s tax compliance plan, an initiative that seeks to close the “tax gap” — the difference between what people owe in taxes and what they actually paid. In the Treasury Department’s analysis, that gap totaled roughly $600 billion in 2019 — a dollar figure equal to 15% of taxes owed. If left as-is, it could rise to about $7 trillion over the course of the next decade.
The Biden administration senses that cryptocurrency reporting could fill in part of that gap. As cryptocurrencies continue to grow in importance, the White House wants to make sure they’ve got that aspect covered.
Not all that different from current regulations
In actuality, the new crypto reporting request is no different than what the IRS asks of taxpayers who make cash transactions of $10,000 reports Consumer Affairs.
“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,” the Treasury Department reported.