U.S. Treasury Proposes Crypto Transactions Above $10K Be Reported To IRS
The United States Department of the Treasury is proposing that cryptocurrency exchanges and custodians should report all transactions above $10,000 to the Internal Revenue Service or IRS for income tax purposes. This will form the third-party information reports to verify taxpayer filings.
The proposal was floated in a report released by the U.S. Treasury titled “The American Families Plan Tax Compliance Agenda” following a recent American Families Plan proposed by U.S. President Joe Biden.
The report reveals that tax compliance rates exceed 95 percent when the IRS can verify taxpayer filings with third-party information reports. However, the compliance rate drops below 50 percent without the third-party reports.
The President also proposed a set of tax compliance measures to foster a tax system where Americans pay the taxes they owe, which will help support the American Families Plan and increase fairness in the tax system.
According to Treasury analysis, the tax gap totaled nearly $600 billion in 2019 and will rise to about $7 trillion over the course of the next decade if left unaddressed, which equal about 15 percent of taxes owed.
These unpaid taxes come at a cost to American households and compliant taxpayers as policymakers choose rising deficits, lower spending on necessary priorities, or further tax increases to compensate for the lost revenue.
Under the proposed new financial account reporting regime, cryptocurrencies and cryptoasset exchange accounts as well as payment service accounts that accept cryptocurrencies would be covered. As for cash transactions, businesses that receive cryptoassets with a fair market value of more than $10,000 would also be reported.
The reporting regime would also cover foreign financial institutions and crypto asset exchanges and custodians. Virtual currencies are stated to have grown to $2 trillion in market capitalization.
The report states that 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 report noted that the IRS has already identified cryptocurrency transactions as an enforcement priority and recently included cryptocurrency reporting on the individual tax return Form 1040.
Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly, including tax evasion. This is why the President’s proposal includes additional resources for the IRS to address the growth of cryptoassets.
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