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Crypto tax evasion
But how does cryptocurrency lead to tax evasion?
According to tax experts, it is mainly due to lax reporting requirements.
The IRS may not be able to track crypto income or transactions if they are not reported by exchanges, corporations, and other third parties. And that means that the income cannot be taxed.
“Nobody has set clear rules about this, so a lot is not reported,” said Jon Feldhammer, partner at law firm Baker Botts and former senior litigator for the IRS.
“Every time you create a non-reporting path, you create an opportunity to capitalize on tax fraud in ways that are untraceable or much harder to track,” he said.
Crypto is fast becoming an alternative to cash as more and more merchants accept Bitcoin and other virtual currencies as a means of payment. But cash is more regulated.
For example, a company that receives more than $ 10,000 in cash from a customer must file a currency transaction report. This can happen when a consumer buys a car for more than $ 10,000 in cash, when someone wins big at the casino, or when a bank receives a large cash deposit.
These reports tell the government that a buyer has a lot of money that may or may not be reported on a tax return.
But the same rules don’t apply to crypto. A used car company that receives $ 20,000 worth of Bitcoin from a customer does not need to file a currency transaction report; This income can also remain untaxed if it is not shown in the entrepreneur’s tax return, said Feldhammer.
“Although cryptocurrency transactions are a relatively small part of business income today, they are likely to grow in importance over the next decade, especially given widespread financial account reporting,” the financial report said.
Additionally, virtual currencies do not have to be bought or sold through an exchange, making these transactions more opaque to government officials.
Biden crypto proposal
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According to the Treasury Department, around 80% of the “tax gap” in the US is due to under-reported incomes, mainly among the wealthy who hide their incomes in opaque structures.
Stricter reporting standards – including “comprehensive reporting” for cryptocurrencies – are among the most effective ways to improve tax compliance, it said.
Biden’s tax agenda would treat crypto transactions like cash and require companies to report if they received more than $ 10,000 in virtual currency.
According to an analysis of the proposal published by the law firm Greenberg Traurig, financial institutions, payment processors, and exchanges and custodians for digital assets would also be required to report crypto transactions above a certain threshold.
The IRS has already shown a greater interest in learning more about taxpayers’ crypto activities – the agency asked a question about cryptocurrency holdings on page 1 of its 2020 tax returns.
Biden’s compliance agenda would have to be passed by Congress. The overall plan would raise $ 700 billion in the first decade and another $ 1.6 trillion in the second, according to the Treasury Department.
The White House would use these funds to pay for measures under the American Families Plan. This proposal includes additional funding for two years of free Universal Pre-K, two years of free community college, heavily subsidized childcare for middle-class families, government-paid family vacations, and expanded tax breaks for children.