Prominent lawmakers have urged the Biden administration to initiate a crackdown on crypto tax evaders and enforce tax reporting guidelines for users in the crypto space.
The United States Congress had mandated new tax rules for crypto traders, but officials have been slow to implement these rules.
According to experts, cryptocurrency brokers have ignored at least half of their tax obligations. Now, a group of prominent Democratic senators has joined Bernie Sanders in demanding federal officials initiate a crackdown to fix what analysts believe is a $50 billion tax gap in the budget caused due to wilful crypto tax evaders. The lawmakers have urged the Internal Revenue Service (IRS) and the Treasury to publish tax reporting guidelines for cryptocurrency brokers and enforce the guidelines.
Along with Bernie Sanders, Democratic Senators Elizabeth Warren, Bob Casey, and Richard Blumenthal have signed a letter warning the heads of the IRS and the Treasury that time was running out to implement the proposed rules. The rules lawmakers were referring to in the letter are the directives that were included in the Senate’s $1.2 trillion infrastructure bill, passed in August 2021. The bill broadened tax reporting requirements for businesses that acted as brokers for cryptocurrencies,
Officials Slow To Implement RulesThe four lawmakers stated that the 2021 Infrastructure Investment and Jobs Act required new reporting requirements when it came to crypto trading. However, officials in the Treasury Department and the Internal Revenue Service have not yet created any rules to implement them, despite a deadline set by Congress looming. Many experts have stated that such a delay in drafting tax regulations of such nature is highly unusual. The lawmakers quoted a report by Congress’s Joint Committee on Taxation, which stated that failure to address the tax gap due to crypto brokers evading taxes could cost the Treasury $28 billion over the next eight years.
“Nearly two years have passed since the law was enacted, and the implementation deadline is less than six months away—but Treasury has yet to publish proposed rules. If your agencies fail to implement the new crypto tax reporting rules by December 31, 2023 — the deadline established by Congress — you will risk losing an estimated $1.5 billion in tax revenue in 2024. This is an unacceptable outcome.”
The lawmakers further argued,
“Research suggests that crypto tax evaders are cheating the IRS out of at least $50 billion a year—but the figure may be much higher. Given the chance, tax evaders and the crypto intermediaries willing to aid them will continue to game the system, exploit loopholes, and siphon off billions of dollars a year from the U.S. government. You must not give them that chance.”
A Significant GapAnalysts from Barclays had claimed the $50 billion figure quoted by the lawmakers last year, based on IRS data from 2017. However, they say that the actual figure could be much higher given the jump in activity in the crypto space in recent years. According to analysts, the $50 billion gap accounts for 10% of the national tax gap, which is the money owed in taxes every year but not paid. Furthermore, because of the anonymous nature of crypto exchanges, the Internal Revenue Service faces a daunting task in figuring out where the taxes are not being paid.
Officials have repeatedly pointed out that the longer it takes to implement rules, the more large crypto traders can avoid paying taxes.
New Rules Could Tackle OffendersIf passed, the new rules implemented by the Treasury Department will require entities such as Coinbase to furnish information about crypto trades. This information would include gains and losses, which would be reported to the IRS. Many experts are of the view that the new rules would give the IRS the much-needed tools to ensure the closure of the tax gap. It would also give the IRS the resources it needs to go after large-scale tax evaders.
The rules have received support from President Joe Biden, who has stated on numerous occasions that crypto loopholes are allowing wealthy crypto investors to hide their revenue from authorities. The new rules will also help the industry, which is already grappling with numerous types of fraud and corruption.
The lawmakers in question have been highly critical of the crypto space, with Warren being extremely outspoken about the FTX debacle. Warren had also asked Fidelity to shelve its 401(k) Bitcoin plan and alleged that the illegal fentanyl drug trade was being funded using crypto.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
