Coming off one of the most tumultuous days in recent memory, the cryptosphere could have done without a headline featuring the letters “I” “R” and “S,” all capitalized and arranged in that order. Alas, when it rains…
“As with cash transactions, businesses that receive cryptoassets with a fair-market value of more than $10,000 would be reported on,” Treasury said Thursday, in a 22-page report detailing proposals for more stringent tax enforcement.
“The IRS operates outdated systems and lacks the ability to fully take advantage of the benefits of more modern technology due to its resource constraints,” the report said, adding that,
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 word “crypto” comes up 17 times (netting out footnotes), but the gist of it is captured in a single paragraph. Namely, this one (from the report):
The President’s proposal includes additional resources for the IRS to address the growth of cryptoassets. Despite constituting a relatively small portion of business income today, cryptocurrency transactions are likely to rise in importance in the next decade, especially in the presence of a broad-based financial account reporting regime. Within the context of the new financial account reporting regime, cryptocurrencies and cryptoasset exchange accounts and payment service accounts that accept cryptocurrencies would be covered.
Treasury also reiterated Janet Yellen’s concerns about illicit financing. “Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion,” the report chided.
Bitcoin promptly reversed some of its gains but, as market participants were reminded on Wednesday, intraday Bitcoin charts are out of date as soon as you post them. You can see the moment the Treasury report was released (and parsed) on an intraday chart of Coinbase and MicroStrategy (figure below).
This isn’t a death knell and it’s hardly surprising, but the language in the report suggests Treasury and the IRS are poised to get more serious about crypto. That’s not the best news for an “asset” which comes packaged with a nod to anonymity.
The good news for crypto proponents is that the entire reason Treasury released the enforcement report in the first place was to lament how far behind the IRS is when it comes to enforcement. Earlier this year, reports indicated the rich hide around a fifth of their income from tax authorities, potentially costing the government some $175 billion annually.
If the IRS can’t manage to sniff out “sophisticated” accounting maneuvers that exploit the existing system, the chances they’ll be able to keep abreast of developments in the cryptoverse seem remote.
Plus, a few more days like Wednesday and it won’t matter anyway.
Read more: Richest Americans Hide 20% Of Income, Costing You $175 Billion Annually
Why aren’t we giving the irs 2 billion or, he’ll, 20 billion… the double whammy of actually taxing the rich and reducing the amount of fed asset purchases that are necessary might do wonders for closing the wealth gap.
I’m sure keeping track of 10k+ transactions and taxing Dodge coin gains might seem appealing as a way of closing the gap between deficit spending and tax inflows given the administration clearly believes they need to fund spending somehow. IMO it is just another way to screw the small fish in the pond, the only meaningful way to increase revenue is to tax corporations properly, avoid IP transfers, tax subsidiary transactions, limit tax haven offshoring and close obvious and multiple code loops. Regardless of what party is in charge the IRS specializes in squeezing pennies out of peasants, some goals are bi-partisan indeed.
I doubt that government interest in clamping down on crypto is driven by tax revenue considerations.
This isn’t a death knell and it’s hardly surprising, but the language in the report suggests Treasury and the IRS are poised to get more serious about crypto. That’s not the best news for an “asset” which comes packaged with a nod to anonymity.
Actually, I disagree. It depends on the language and intent. For example, some of the sentences in your quotes imply/explicitly state the IRS expects crypto assets to be macro significant in the medium term. If I was a crypto enthusiast, I’d take heart in that acknowledgement and de facto institutionalization.
Sure, it’d be best if Yellen wasn’t looking like a sour puss and complaining about outdated concerns regarding illegal activities. It’s frankly annoying to anyone with a brain. USD notes are the truly untraceable money and, as we know, big and even medium sized USD denominations are covered in drugs… so paper money is definitely anonymous and facilitating all kinds of crimes.
As to pure bank transfers etc. Sure, governments love these. Easy to trace and record. Fine. And, as long as it’s for tax purposes (as opposed to Chinese-style dreams of 1984), I’m okay with it. I’ll simply note that this is this present system that allow the rich to hide so much of their wealth. Clearly bank electronic records aren’t the panacea either…
Basically, institutionalizing crypto seems the best way forward. But please prove me wrong. This could be motivated reasoning since I’m investing in the space professionally.
Why is this surprising?
AML already requires SARs on 10K+ transactions.
The government is already asking a filing taxpayer if they did any crypto transactions in 2020.
Unlike the previous bubble, it seems there is significantly more “mainstream” rich people participating this time – they’ll handle the taxes just like they do any other asset: hire expensive lawyers and CPAs to minimize the problem.
What is much less clear is now effective this policy will be outside of the exchanges. Between Taproot and lightning network, even the bs chainanalysis claims will be worthless.
Yes, the US gov can (and should) clamp down on the crypto to USD part in financial institutions, but it will have a really hard time getting data on existing crypto stashes and future crypto movements via the above 2 changes -unless the transactions occur inside an exchange.
I think more than anything this is just a sign they want something easy to go after if they find a problem. Running an unregistered money transfer business might be hard to detect but if say you can just point to a few $10k+ transactions and say, well that’s obviously not being reported so let’s look closer… they it makes enforcement easier. I suspect this is strongly focused on chasing criminal enterprises rather than tax evasion. Tax evasion has been easy if you’re rich forever.