The United States Treasury Department released a statement on Thursday announcing their plans to crack down on tax evasion using cryptocurrency. The Treasury Department plans to raise an additional $700 billion through the new tax compliance measures.
In the 22-page report, officials highlighted a number of policies to grow enforcement aimed at combating the expanding tax gap. The tax gap is the calculated difference between what taxpayers are paying and what they actually owe. Currently, the tax gap is around $600 billion annually.
The Internal Revenue Service (IRS) commissioner, however, believes the number could exceed $1 trillion when cryptocurrencies are taken into account. The policies identified include increased reporting requirements, new auditor tools, and new rules specific to cryptocurrencies.
Closing the gap
The plan will require any transfer of $10,000 or more will be reported to the IRS and could raise as much as $2 trillion over the next 20 years. Just getting close to closing that gap could be a huge step in funding President Biden’s multi-trillion-dollar spending proposals. Proposals aimed at bettering childcare, manufacturing, and other domestic priorities.
In the report, the Treasury Department said:
“Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion. This is why the President’s proposal includes additional resources for the IRS to address the growth of crypto assets. Within the context of the new financial account reporting regime, cryptocurrencies and crypto asset exchange accounts, and payment service accounts that accept cryptocurrencies would be covered. Further, as with cash transactions, businesses that receive crypto assets with a fair market value of more than $10,000 would also be reported on.”
In the past, many Wall Street analysts have been warning the public that government regulators at the Treasury and SEC would soon be taking more interest in crypto regulations. Those concerns are now a reality and will add another roadblock for current and future crypto investors. Especially considering the recent market dip.
Financial services company, Raymond James, expects it’s only a matter of time until Congress grants the SEC broader jurisdiction to cover digital assets. Especially with Gary Gensler now at the helm. Gensler recently spoke with lawmakers and stated that allowing the SEC to regulate crypto exchanges will help protect investors against market manipulation.
Not everyone is confident that Gensler has the investor’s interests in mind, however.
Ed Mills, an analyst for Raymond James, wrote that “Chairman Gensler is viewed as a potential ally for cryptocurrencies as a former professor on the topic; however, these statements are likely to revisit debates regarding the regulatory risk to cryptocurrencies and exchanges.” He goes on to say that in the long-term, regulation could add legitimacy to the asset class and provide a “regulatory moat around existing cryptocurrency exchanges.”