By
Godfrey Benjamin
May 13th, 2024
Through the new tax reporting requirements, the IRS hopes to bridge the gap between the tax due to the government and the actual funds generated per what citizens report.
The US Treasury Department is proposing a new set of tax reporting regulations that will let the Internal Revenue Service (IRS) record the money movement in the digital currency ecosystem. According to the report released by the Treasury Department, cryptocurrency transactions worth as much as $10,000 are now required to be reported to the IRS.
The move was necessitated as noted by the department as crypto transactions are increasingly becoming difficult to detect.
“Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion,” the Treasury Department said in the release.
It is no news that President Joe Biden‘s administration is looking to strengthen the IRS and its capabilities to clamp down on tax evasions.
“This is why the President’s proposal includes additional resources for the IRS to address the growth of crypto assets,” the department added. “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.”
Digital currencies are now a common mode of transactions in the United States, with regulators noting that citizens on the high end of the earnings curve may be moving their funds into the nascent asset class in a bid to evade taxes.
“These opportunities are particularly available for those in the top end of the income distribution who can avoid taxes through sophisticated strategies such as offshoring, creating complex partnership structures, or moving taxable assets into the crypto economy,” the Treasury report states.
Through the new tax reporting requirements, the IRS hopes to bridge the gap between the tax due to the government and the actual funds generated per what citizens report. The regulation is billed to be enforced with stricter sanctions for those who violate the rules.
Is the US Tax Reporting and Regulations a Tool to Grow the Crypto Industry?
The cryptocurrency industry as we have it today is plagued by many factors including extreme price volatilities, compounded by undue market manipulations. Industry analysts have seen regulations by both the Treasury Department and the Securities and Exchange Commission (SEC) as a veritable tool to combat these inconsistencies.
The regulatory moves can have a multifaceted impact. In the short term, it may put investors under pressure as the market has been bearish over the past month, a situation caused by various negative news tilting the market balance. In the longer term, however, regulations could bring safety to market participants and help mitigate the risks inherent in the space, as well as in helping to curb the impacts of commentaries from industry veterans like Elon Musk.
Talking about the impacts of regulations, Raymond James analyst Ed Mills said in a statement:
“In the short-term, this could cause headline risk. However, in the medium-to-long term, regulation would add further legitimacy to the asset class and could provide a regulatory moat around existing cryptocurrency exchanges.”
The new tax reporting standards will come into full effect in 2023 if it is implemented across the board.