US Treasury Wants Stricter Crypto Rules & $10K Reporting

Impact of Biden's IRS Plan on Cryptocurrency Trading

President Biden's initiative to strengthen and expand the Internal Revenue Service is expected to significantly influence the landscape of cryptocurrency trading.

New Reporting Requirements Proposed

A recent report from the U.S. Treasury Department outlines the administration’s plans to implement new regulations. These regulations aim to enhance the government’s ability to track financial transactions, with a specific focus on digital currencies.

The report highlights that cryptocurrencies present a “significant detection problem” and are frequently utilized by high-income individuals seeking to avoid tax obligations.

Framework Based on Existing Forms

The proposed changes will establish new reporting obligations, building upon the existing 1099-INT form currently used by taxpayers to declare interest income.

Cryptocurrency exchanges and custodians will be mandated to provide detailed information regarding the “gross inflows and outflows” of funds transiting their platforms.

Transaction Reporting Threshold

Furthermore, businesses will be required to report cryptocurrency transactions exceeding $10,000 under these new reporting guidelines.

“Although cryptocurrency represents a relatively small portion of overall business transactions, such comprehensive reporting is crucial to reduce the incentives and opportunities for income shifting outside of the established information reporting system,” the report emphasizes.

Tax Evasion by High Earners

The Treasury Department points out that affluent taxpayers often exploit intricate schemes that the IRS currently lacks the resources to effectively counter.

The IRS currently achieves a 99% tax collection rate on wages, but this figure drops to an estimated 45% for non-labor income. This disparity disproportionately benefits high earners with “less visible” income streams.

Virtual Currency as a Challenge

The Treasury identifies virtual currency, despite some existing reporting requirements, as a particular challenge due to its operation within largely unregulated areas.

“These opportunities are especially accessible to individuals at the higher end of the income spectrum who can evade taxes through sophisticated methods like offshoring, establishing complex partnership structures, or transferring taxable assets into the crypto economy,” the report states.