Biden Tax Plan targets cryptocurrency compliance to fund IRS
TAX ALERT |
On May 20, 2021, the Treasury released The American Families Plan Tax Compliance Agenda (Compliance Agenda), which outlines proposed ways to increase compliance measures that will help close the “tax gap” and, consequently, will help to fund the President’s plan to rebuild the IRS, which is estimated to cost over $80 billion over the next 10 years. The Compliance Agenda comes on the heels of a flurry of proposed plans released within the last two months including The Made in America Tax Plan, Overhauling International Tax Framework and The Made in America Tax Plan Report. For more information on these proposals, refer to our recently published articles, Biden tax plan: International tax implications, Biden Unveils his American Families Plan and President Biden signs American Rescue Plan Act of 2021.
The IRS views cryptocurrency compliance as a priority and they have included the reporting of this information on an individual tax return (refer to IRS issues digital asset updates to staff manual and draft form 1040). This comes as no surprise to those watching this space as the IRS has warned of stricter crypto asset enforcement since November of 2018 (refer to IRS Commissioner warns of stricter crypto enforcement).
The Compliance Agenda notes that cryptocurrency will be subject to increased information reporting. According to Compliance Agenda, “Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion.” The Compliance Agenda anticipates a significant increase in digital asset use over the next 10 years and the proposed compliance plan would include cryptocurrencies, crypto asset accepting payment service accounts and cryptoasset exchange accounts. Additionally, businesses receiving any crypto assets with a fair market value over $10,000 will now have to report these assets. Thus bringing the reporting of digital assets in line with cash transactions. The Compliance Agenda focuses on third-party information reports as compliance rates substantially increase when the IRS can verify the information via these reports.
Businesses engaged in the digital asset industry should expect to see additional regulations and reporting requirements in the coming years. As additional guidance is formalized, it is imperative that taxpayers and those with information reporting requirements stay informed on their obligations; especially the effective dates as missed reporting requirements can be costly to remediate. Digital asset businesses with potential exposure should consult with their tax advisors.