Officials at the United States Department of the Treasury are calling for exchanges and custodians to report crypto transactions greater than $10,000 to the Internal Revenue Service.
In a report released on Thursday concerning tax proposals for President Joe Biden’s American Families Plan, the Treasury Department took aim at digital assets by proposing businesses including banks, payment providers and cryptocurrency exchanges report more information on their inflows and outflows from accounts each year starting in 2023. At the moment, the IRS does not have independent verification of such transactions, potentially leading to a widening tax gap — the difference between taxes owed and paid.
“Financial institutions house a lot of valuable information, and indeed already provide third-party reports to the IRS,” said the report. “Leveraging this information — rather than introducing new requirements for taxpayers — is a proven way to improve compliance.”
Saying crypto posed “a significant detection problem by facilitating illegal activity,” the government body specifically mentioned that crypto businesses were in its crosshairs:
"Businesses that receive cryptoassets with a fair market value of more than $10,000 would also be reported on. 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."
According to data from the IRS in October 2020, 83.6% of taxes were paid "voluntarily and on time" from 2011 to 2013. However, the Treasury Department report projects that the tax gap will reach roughly $7 trillion total over the next 10 years, with the proposal aimed at shrinking this potential gap by 10%. It claimed the government would be able to audit companies with any tax discrepancies more effectively, incentivizing them to report all transactions properly.
Lumping in crypto with cash as a way of shielding businesses from their reporting requirements, the Treasury Department said that digital currencies were a “significant concern” for the government. Though the IRS has been able to obtain data on individual crypto taxpayers from some exchanges, businesses dealing with cash and crypto are seemingly in a blind spot for tax regulators.