The U.S. Treasury Department has announced it will take further steps to tighten control over cryptocurrency transactions, including requiring anyone exchanging cryptocurrencies valued over $10,000 to report to the IRS. This move aims to curb tax evasion on the substantial profits earned by holders of these currencies in recent months. Cryptocurrencies are considered a real threat as they facilitate illegal activities in general, including tax evasion.
Last Wednesday, Bitcoin and Ethereum recorded their largest single-day drop since March of last year, resulting in market capitalization losses for the entire cryptocurrency sector nearing $1 trillion. These sharp declines followed China’s ban on financial institutions and payment companies from providing cryptocurrency services.
On Thursday, the U.S. Treasury called for a tax on cryptocurrency transactions between companies, seeking to increase revenues to fund a proposed $1.6 trillion plan aimed at expanding education and social insurance. This idea is part of broader efforts to finance the proposed support plan for American families, including tax increases on the wealthy. It stipulates that "companies receiving cryptocurrency assets with a fair market value exceeding $10,000" must report to the IRS.
The Treasury clarified that accounts or payment services using cryptocurrencies like Bitcoin are also included under the new reporting requirements. In a presentation of the proposal, the department noted, "While they currently represent a relatively small portion of business income, the importance of cryptocurrency transactions is likely to grow over the next decade, especially with a large-scale financial account reporting system in place."
Taxing digital assets is part of a larger plan by the Treasury to increase IRS staffing and law enforcement authorities to close the gap between what the government is owed and what it actually collects. The department estimated this gap was about $600 billion in 2019 and will rise to nearly $7 trillion over the next decade if not addressed.
The American family support plan is one of two major proposals from President Joe Biden; the second is the American Jobs Plan, aimed at rejuvenating the country’s infrastructure at a cost of around $2 trillion. With Democrats narrowly controlling Congress, Biden faces pressure to find ways to fund both plans and secure the necessary votes from Republicans for their approval.
Bitcoin, Dogecoin, Ethereum, and other digital currencies gained popularity and value over the past year due to the economic disruptions caused by the COVID-19 pandemic and promotion by certain companies. The Federal Reserve is considering creating its own digital currency and announced on Thursday it will publish a study this summer discussing the impact this could have on payment systems and the feasibility of issuing a U.S.-backed digital currency. Federal Reserve Chairman Jerome Powell stated, "We believe it is important that any (Central Bank Digital Currency) could serve as a complement rather than a substitute for cash and current private sector digital dollar variations, such as deposits in commercial banks."
