Want to buy a car with some bitcoin? If the Biden administration has anything to do with it, the Internal Revenue Service will find out about.
In another sign of the federal government’s increasing focus on cryptocurrency, the Treasury Department said Thursday that it wants to require businesses to report large cryptocurrency transactions to the IRS.
“As with cash transactions, businesses that receive cryptoassets with a fair market value of more than $10,000 would also be reported on,” the Treasury Department said Thursday in a report outlining potential new tax compliance measures.
The crypto reporting requirement is one part of a broader Biden administration effort to bring in more tax dollars — via tax hikes on the rich and tougher enforcement of existing tax laws — for its $1.8 trillion American Families Plan, a far-reaching proposal that would offer paid family leave, free community college and universal pre-kindergarten.
The tougher tax enforcement would come about in two ways: more funding to rebuild the ranks of the IRS, and more information reporting to the IRS so the tax agency has a better understanding of where money is going and who has it.
“Although cryptocurrency is a small share of current business transactions, such comprehensive reporting is necessary to minimize the incentives and opportunity to shift income out of the new information reporting regime,” the report said.
Kell Canty, the CEO of Verady, which provides cryptocurrency tax accounting products to individuals and businesses, said businesses must already report fiat currency transactions above $10,000 in the IRS Form 8300. The form asks for the identities of the parties or businesses in the transaction and the method of payment.
If the Biden administration proposal becomes law, it would extend that same reporting obligation to cryptocurrency transactions, he said.
“They are signaling ‘We are going to get all kinds of indications of people spending cryptocurrency,’” Canty said of the administration’s proposal.
Virtual currency can be used for some purchases. For example, MLB’s Oakland A’s and the NBA’s Dallas Mavericks sold tickets in exchange for dogecoin
CEO Elon Musk recently said the electric vehicle market has “suspended vehicle purchases using bitcoin” because of the environmental toll from bitcoin
In tax year 2019, the gap between taxes paid and taxes owed to the federal government was an estimated $584 billion, the Treasury Department report said on Thursday.
That’s lower than IRS Commissioner Charles Rettig’s estimate that there could be a $1 trillion annual tax gap. Under-reporting and non-reporting on cryptocurrency gains play a role in that tax gap, he said at the time.
The IRS applies capital gains tax rules to cryptocurrency, just like it would with stocks. But the IRS needs to know about sales, profits and losses before it can assess any tax.
The tax collection agency has been going to court to make cyrptocurrency exchanges supply information on certain customers who might be less than candid about their cryptocurrency holdings. For example, a federal judge in April signed off on one summons to Circle for the account activity of customers with at least $20,000 in transactions between 2016 and 2020.
(The IRS and the Justice Department noted they were not alleging any wrongdoing by Circle.)
In another signal of the IRS curiosity when it comes to crypto, it redesigned the look of the Form 1040 to prominently include a question about cryptocurrency.