The Senate’s $ 1.2 trillion bipartisan infrastructure deal targets cryptocurrency transactions as a new source of tax revenue to help pay for them, setting off red flags in the unregulated financial technology industry.
The legislation, which was being finalized on Sunday, would raise an estimated $ 28 billion by requiring cryptocurrency brokers and investors to report transactions to the Internal Revenue Service.
It would impose similar rules on transactions involving Bitcoin and more than 8,600 forms of cryptocurrency that currently apply to the sale of stocks and securities.
The Congressional Joint Tax Committee said the $ 28 billion would come from identifying transactions that circumvent income taxes. According to supporters of the plan, the reporting requirements alone are expected to be enough to scare tax evaders into paying taxes.
The Treasury Department wants to impose the reporting requirement on transactions worth more than $ 10,000, the same reporting threshold for cash and other business transactions.
Still, a new IRS reporting rule is also a regulatory shot for carefree crypto markets.
The Blockchain Association, an advocacy group for the cryptocurrency industry, argues that the new IRS reporting rules would undermine the development of the US currency market.
The definition of a broker in the proposal is too broad and could include software developers and others involved in cryptocurrency transactions, the association says. That could put companies vital to cryptocurrency development going out of business in the US, said Kristin Smith, CEO of the Blockchain Association.
“Unfortunately, this is what happens when legislation moves too fast,” he said.
The association is trying to modify the regulations as infrastructure advances in the Senate. But the association does not object to the information requirements in their entirety, Ms. Smith said.
She and other crypto advocates contend that those who owe taxes related to cryptocurrency transactions are often unaware that they have a tax bill due.
As cryptocurrency took hold in recent years, and exploded in popularity during the coronavirus pandemic, the rules governing the fintech industry were not kept up to date, creating uncertainty about what they are supposed to do. investors, Smith said.
Unlike investments in stocks, cryptocurrency companies do not send their clients a 1099-B form that indicates how much money they made and how much taxes they owe.
“They don’t get a 1099-B, so they don’t think about it,” Smith said.
It is not yet clear whether the IRS will have cryptocurrency brokers submit such forms.
Senate Finance Committee Chairman Ron Wyden, D-Oregon, said cryptocurrency has come of age and deserves to receive the same tax treatment as the rest of the financial sector.
“In 2011, a Bitcoin did not buy you a ham sandwich. Today’s cryptocurrency creates huge new opportunities for tax scammers to defraud the American people, ”he said at a recent hearing on tax collection.
The IRS estimates that $ 441 billion in taxes due are not paid on time each year, which means that approximately 83.6% of taxes are paid on time. However, that figure does not include taxes on unpaid cryptocurrencies or from foreign or illegal sources.
IRS Commissioner Charles Rettig told Mr. Wyden’s committee that he did not put a number on how many cryptocurrency-related taxes are left unpaid, a figure the agency calls the tax gap.
But he said that if you consider those and other unaccounted forms of unpaid taxes, “it would not be unreasonable to believe that the tax gap is approaching or possibly exceeding $ 1 trillion per year.”
