Thumbnail Source: https://www.bbc.com/news/world-us-canada-54774814
The Biden administration has called out to the world for international cooperation on crypto tax evasion by sharing data, striving to beat crypto tax evasion - a massive issue for the ethical world.
The Announcement
Released last Friday, the announcement comes from the Treasury Department in the General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals. As the name suggests, it is a document that gives out the plan of the revenue projects for next year, 2022, and this includes crypto, gaining enormous popularity over 2021. The document can be viewed here: https://home.treasury.gov/system/files/131/General-Explanations-FY2022.pdf.
The report proposes an obligation for crypto brokers, including exchanges and hosted-wallet providers, to hand in information to the IRS (Internal Revenue Service) on indirect foreign accounts interacting with them. This information collected could be passed from the US onto other foreign governments, forming a link as they give back data from their nation regarding any Americans holding any offshore exchanges and wallet providers. The link between the US, a significant contributor to crypto and the world's number one economy, and other nations on crypto means that crypto will soon become a pass of continuous hide-and-seek for crypto tax evaders, the whole world out for them.
The proposal would need congressional legislation but is part of the campaign by President Joe Biden's administration to have stronger tax enforcement to collect higher government revenue to carry out projects and programs accumulating to trillions of dollars. According to the document mentioned above, 'The proposal would be effective for returns required to be filed after December 31, 2022'(page 95). This means that there is still a long way until a great crackdown on crypto from the US happens. However, it is important to note that China has already started battering crypto down, recently banning crypto mining, and it is a possibility that China would collaborate with the US against crypto tax evasion, both seeing the great potential of tax revenue if successful.
According to Charles Kolstad, a partner of international law firm Withers, the proposal would be a continuation of information exchanges the US has already done with foreign governments to reveal Americans hiding crypto offshore in hidden foreign bank accounts.
Other proposals regarding crypto were also mentioned within the document and can be checked out in the link above as further reading, using CRTL+F and entering 'crypto' to find desired areas.
Looking At Crypto Tax Evasion
Officials claim that crypto has served as a major contributor to the growing tax gap (i.e. the difference between taxes owed and those paid on time). Charles Rettig, the IRS Commissioner, estimated that it may be beyond $1 trillion every year, showing how much potential revenue the US could get with an effective crackdown on crypto. According to the Congressional Budget Office, the US has received in tax revenue an actual $3.46 trillion in FY (Fiscal Year) 2019, an estimated $3.71 trillion in FY 2020, and a projected $3.86 trillion in FY 2021. The data was received from the balance here: https://www.thebalance.com/current-u-s-federal-government-tax-revenue-3305762.
Using the assumption made by Rettig, effective crypto taxing will boost the tax revenue by more than 25%, which is a great contribution to the US. This indicates why extensive crypto taxing is so sought after, not only from the US but other nations as well, creating an influx in tax revenue to power the government/authorities forward.
A director of Marcum LLP, a national accounting and advisory services firm, Evan Fox stated the following with the proposals on crypto:
They’re really looking to gather as much information on the purchase, sale and movement of digital assets as possible.
Would Privacy Coins Become The Next Top Cryptocurrency?
With the US and other nations seeming to join in the hunt for spotting crypto tax evasion, crypto may turn in a sense more centralised. Although cryptocurrencies for the most part are decentralised ecosystems, they still can be searched and sourced. Every transaction and wallet is available through the blockchain's explorer, and so with some information, a crypto tax evader could easily be caught and prosecuted. This becomes even easier when third-party wallets are used, having a more centralised structure to them, thus more vulnerable areas for authorities to take advantage of where necessary.
However, this is not so with privacy coins, having the option to disclose an upload to the blockchain explorer. The current top 3 privacy coins according to CoinGecko are Monero (XMR), Dash (DASH) and Decred (DCR). With the onset of the government trying to take control of the crypto world, many people may migrate into privacy coins that do not have the vulnerabilities of an open explorer as with other cryptocurrencies.
Looking at the privacy coins on CoinGecko, almost every one of them have had decent gains over the past 24 hours, the only one with a loss in the snapshot DCR at -2.2%. XMR had the highest gain at 10.8%. The reason for such gains may be from the proposals made from the US, though it seems unlikely, but as always in the crypto world, a possibility.
Further Reading
Bloomberg - Biden Targets Crypto Tax Evaders in Global Data-Sharing Pitch - https://www.bloomberg.com/news/articles/2021-06-02/biden-targets-crypto-tax-evaders-in-global-data-sharing-pitch
be[in]crypto - Biden Goes After Crypto Tax Evaders with Global Data Sharing Initiative - https://beincrypto.com/biden-crypto-tax-evaders-global-data-sharing/
be[in]crypto - Crypto Tax USA — How the IRS, Exchanges and Services Work Together - https://beincrypto.com/crypto-tax-usa-how-the-irs-exchanges-and-services-work-together/
CryptoDaily - US To Tighten Monitoring Of Foreign Crypto Investors In Concerns Over Tax Evasion - https://cryptodaily.co.uk/2021/06/US-tighten-monitoring-of-foreign-crypto-investors
Being aware of crypto holdings is just the first step, figuring out how to tax currency that has not been turned into USD is another concern. How and should the IRS tax a transaction from DOGE to CUMMIES?