- The Biden administration is calling for banks and crypto exchanges to report transactions to the Internal Revenue Service.
- In a bid to reduce the tax gap, the Treasury is requesting the reporting of digital asset transfers of over $10,000.
- Under the proposal, payment service accounts that accept digital currencies would also be covered.
United States President Joe Biden is allocating more funding to the Internal Revenue Service (IRS) to apply traditional standards to crypto exchanges.
Crypto to rise in importance in the next decade
According to the president's tax compliance measures, the United States Department of Treasury is cracking down on tax evasion involving digital assets.
In the published report by the Treasury, one of the proposals requires “increased information reporting,” explaining that financial accounts will be subject to additional visibility of gross receipts and expenses to the IRS.
The reporting regime would cover foreign financial institutions as well as cryptocurrency exchanges and custodians. With $2 trillion in market capitalization, the report highlighted:
Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion.
The proposal also noted that although cryptocurrencies constitute a relatively small portion of business income today, digital asset transactions are likely to rise in importance in the next decade.
The Treasury calls out for transactions related to cryptocurrency transactions greater than $10,000 to the IRS. As part of the new regime, banks, crypto exchange accounts, and payment services that accept the new asset class would also be covered.
Currently, the IRS does not have any independent verification of crypto-related transactions, which is potentially leading to a widening tax gap. The Treasury will require businesses to report more information on their inflows and outflows from accounts each year starting in 2023.
The report added:
Financial institutions house a lot of valuable information, and indeed already provide third-party reports to the IRS. Leveraging this information – rather than introducing new requirements for taxpayers – is a proven way to improve compliance.
83.6% of taxes were paid voluntarily and on time from 2011 to 2013, according to data from the IRS in October 2020. The Treasury Department reports that the tax gap could reach around $7 trillion in the next 10 years. The new proposal aims to reduce this gap by 10%, as the government would be able to audit companies with any tax discrepancies more effectively.
Bitcoin price fell 5% after the proposal was announced, following China’s regulatory crackdown on cryptocurrencies a day earlier.