Biden Administration’s Proposals Will Dramatically Improve IRS’s Ability to Identify Cryptocurrency Transactions | McDermott Will & Emery

The Biden administration and the Internal Revenue Service (IRS) continue to focus heavily on cryptocurrency tax enforcement issues. On May 20, 2021, the US Department of the Treasury released the American Families Plan Tax Compliance Agenda, a 22-page report detailing the tax compliance measures that must be included in US President Joe’s plan for families. Biden. The report presents a number of initiatives designed to “close the tax gap”, identify the underreporting of tax debts and detect tax evasion. These measures, which are part of an $ 80 billion proposal for the IRS, would dramatically improve the ability of agencies to meet the challenges of finding taxes resulting from virtual currency transactions.

The Treasury report notes that “[c]ryptocurrency already poses a significant detection problem by facilitating illegal activities in the broad sense, including tax evasion. To address this issue, the Biden administration is offering “additional resources for the IRS to deal with the growth of crypto-assets.”

Most notably, the Biden administration offers enhanced reporting requirements for domestic and foreign financial accounts that deal specifically with cryptocurrency. Financial institutions, including “crypto-asset exchange accounts and payment service accounts that accept cryptocurrency” would be required to submit annual third-party reports on all “gross inflows and outflows” of accounts professionals and personnel to the IRS using a form similar to IRS 1099 -INT. Additionally, “businesses that receive cryptoassets with a fair market value over $ 10,000 would be reported” in a manner similar to how cash transactions are reported in currency transaction reports. . These new reporting requirements would significantly increase the IRS’s ability to identify and detect unreported cryptocurrency transactions.

The report also emphasizes the need to devote additional funds to the IRS. Biden administration seeks additional $ 80 billion in funding so Treasury and IRS can, among other things, hire “new law enforcement staff” and “revitalize[e] IRS review of large corporations, partnerships, and wealthy and high-income global people.

Additionally, the Biden administration plans to overhaul the IRS’s IT systems and capabilities. These IT enhancements are designed to “help support staff capable of deploying new analytical techniques” and “develop machine learning capabilities. [that] will allow the IRS to leverage the information it collects to better identify tax returns for compliance review. Given the difficulties inherent in identifying cryptocurrency users who have violated internal revenue laws, increased data collection and analysis capabilities would be invaluable to the IRS.

The IRS has already stepped up its cryptocurrency tax enforcement efforts by issuing John Doe invitations to various cryptocurrency exchanges, working with industry experts and foreign law enforcement. If implemented, the U.S. Family Plan’s tax compliance program will provide the IRS with extensive new tools and resources for these ongoing enforcement activities.

Practice point: If you have been engaged in cryptocurrency transactions, now is the time to analyze whether you have civil or criminal exposure and prepare for a government investigation by gathering all of your transaction records. For example, you will need to know and be able to prove things like when the crypto was bought and sold, the transaction amount, the exchanges used, and whether you had a hard or soft fork. You should also consider whether you should seek legal advice and analysis to strengthen the position you have taken or not taken on your income tax returns, foreign bank account statements (FBAR), etc., and whether you need to change your returns. to take on a different tax situation or ask for forgiveness under the IRS voluntary disclosure program. Preparation is the key to successful and effective tax resolution.

[View source.]

About Keith Tatum

Check Also

Melewar Industrial Group Berhad (KLSE: MELEWAR) has a somewhat strained balance sheet

David Iben put it well when he said, “Volatility is not a risk we care …

Leave a Reply

Your email address will not be published. Required fields are marked *