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“The IRS operates outdated systems and lacks the ability to fully take advantage of the benefits of more modern technology due to its resource constraints,” the report said, adding that,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promptly reversed some of its gains but, as market participants were reminded on Wednesday, intraday Bitcoin charts are out of date as soon as you post them.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.