All transactions above $10,000 now have to be reported to the IRS for documentation and taxation purposes. This comes right after a major market-wide correction which saw the price of bitcoin tumbling down to $30K.
IRS Doubles Down
The IRS will be expanded with an $80B package aiming to increase their manpower and resources. Individuals and businesses dealing in cryptocurrency will be subject to a higher level of scrutiny, given that the Treasury believes cryptocurrency transactions, in particular, to be harder to trace and tax.
Treasury officials think that this plan will (conservatively) generate $700B within the next decade, arguing that weak enforcement of tax rules disproportionately benefits wealthier tax evaders since they have more sophisticated tools at their disposal to hide and launder money.
The Ongoing Crypto Tax Battle
President Biden, in order to fund his ambitious infrastructure program for the US, has been looking for ways to maximize government revenue more effectively. This included a proposal to double the top capital gains tax rate, which would generate billions of dollars in revenue from wealthy investors, including young millionaires in the cryptocurrency market.
Although it’s relatively easy to tax brokerage accounts (major trading platforms are completely tax-compliant in the US), it’s not as easy to get a grip on total capital gains in the crypto world.
This is due to several factors, including top exchanges not requiring KYC, massive on-chain trading volume (Uniswap, PancakeSwap), and the ease of mixing money through services like Tornado Cash and Swirl.
While cryptocurrency wallets and transactions on the blockchain may not necessarily be linked to one’s real identity, they are pseudonymous, and transactions can often be clustered together – all it takes is one point of failure (like a centralized exchange) to positively ID an ‘anonymous’ user.