The Biden administration wants to get tougher on tax cheats and cryptocurrency is an area of interest.
The IRS may not be able to trace income or crypto transactions if they are not reported by exchanges, companies, and other third parties. And that means the income cannot be taxed.
“No one has set clear rules for this, so there’s a lot of non-reporting going on,” said Jon Feldhammer, partner at the Baker Botts law firm and former senior litigator for the IRS.
“Every time you create a non-reporting lane, you create a way to benefit from tax evasion in a way that cannot be found or much more difficult to trace,” he said.
Crypto is emerging as an alternative to cash as more traders accept bitcoin and other virtual currencies as a form of payment. But cash is more heavily regulated.
About 80% of the US “tax gap” is due to underreported income, mostly among the wealthy who hide their income in opaque structures, according to the Treasury Department.
Stricter reporting standards – including “full reporting” for cryptocurrency – are among the most effective ways to improve tax compliance, he said.
Biden’s tax program would treat crypto transactions like cash, forcing companies to report when they receive more than $ 10,000 in virtual currency.
Financial institutions, payment settlement entities, and digital asset exchanges and custodians would also be required to report crypto transactions above a certain threshold, according to an analysis of the proposal released by law firm Greenberg Traurig.
The IRS has already shown increased interest in learning more about taxpayer crypto activity – the agency asked a question about cryptocurrency holdings on page 1 of the 2020 tax returns.
Biden’s compliance program is expected to pass Congress. The total plan would raise $ 700 billion in the first decade and an additional $ 1.6 trillion in the second, according to the Treasury.
The White House would use these funds to finance the measures of the American plan for families. This proposal includes additional funding for two years of free universal kindergarten, two years of free community college, heavily subsidized child care for middle-class families, federal paid family leave and expanded child tax credits.