Thumbnail Source: https://www.bbc.com/news/world-us-canada-54774814
The Biden administration has called on the world for international cooperation on tax evasion through data sharing, seeking to defeat crypto tax evasion, a huge problem for the ethical world.
Published last Friday, the announcement comes from the Ministry of Finance in General Explanations of the Administration's FY 2022 Revenue Proposals . As the name suggests, this is a document that lays out the revenue plan for the next year, 2022, and that includes crypto gaining huge popularity in 2021. The document can be seen here: https: //home.treasury. gov / system / files / 131 / General-Explanation-FY2022.pdf .
The report proposes an obligation for crypto brokers, including exchanges and hosted wallet providers, to hand over information to the IRS (Internal Revenue Service) about indirect foreign accounts that interact with them. This collected information may be shared by the US with other foreign governments, forming a nexus as they return data from their nation on all Americans who hold offshore exchanges and wallet providers. The connection between the US, a major contributor to crypto and the world's number one economy, and other crypto nations means that crypto will soon become a gateway for tax evaders to continuously hide, the whole world for them.
The proposal would need congressional legislation, but is part of a campaign by President Joe Biden's administration to have stronger tax measures to raise more government revenue for projects and programs that add up to trillions of dollars. According to the aforementioned document, "The proposal would be effective for returns due after December 31, 2022" (p. 95). This means there is still a long way to go until a major US crackdown on crypto happens. However, it is important to note that China has already started to beat crypto down, recently banned crypto mining, and it is possible that China will cooperate with the US against crypto tax evasion, as both see the great potential of tax revenue if they succeed.
According to Charles Kolstad, a partner at the international law firm Withers, the proposal would be a continuation of the information exchange that the US has already done with foreign governments to reveal that Americans are hiding crypto offshore in hidden foreign bank accounts.
Other proposals regarding crypto were also mentioned in the document and can be checked in the above link as further reading by using CRTL + F and typing "crypto" to find the desired areas.
Looking at crypto tax evasion
Officials claim that crypto has contributed to the widening tax gap (ie the difference between taxes owed and taxes paid on time). Charles Rettig, the commissioner of the IRS, estimates that it could exceed $1 trillion each year, showing how much potential revenue the U.S. could gain by effectively curbing crypto. According to the Congressional Budget Office, the United States actually received $3.46 trillion in tax revenue in fiscal year (fiscal year) 2019, an estimated $3.71 trillion in fiscal year 2020, and a projected $3.86 trillion in fiscal year 2021. The data are obtained from the balance sheet here: https://www.thebalance.com/current-us-federal-government-tax-revenue-3305762 .
Using Rettig's assumption, effective crypto taxation would increase tax revenue by more than 25%, a large contribution to the US. This shows why extensive crypto taxation is so sought after not only by the US but also by other countries, creating an influx of tax revenue to prop up the government/authorities going forward.
Director of Marcum LLP, a national accounting and consulting services firm, Evan Fox had the following to say about the crypto offerings:
They really aim to gather as much information as possible about the buying, selling and movement of digital assets.
Will privacy coins become the next top cryptocurrency?
As the US and other countries seem to be joining the hunt to uncover crypto tax evasion, crypto may become, in a sense, more centralized. Although cryptocurrencies are for the most part decentralized ecosystems, they can still be mined and mined. Every transaction and wallet is accessible through the blockchain explorer and so with some information a crypto tax evader can be easily caught and prosecuted. This is made even easier when using third-party wallets that have a more centralized structure to them, thus more vulnerable areas for authorities to tap into when needed.
However, this is not the case with privacy coins, as you have the option to reveal an upload in the blockchain explorer. The current top 3 privacy coins according to CoinGecko are Monero (XMR), Dash (DASH) and Decred (DCR). With the advent of the government trying to take control of the crypto world, many people may migrate to privacy coins that do not have the open explorer vulnerabilities of other cryptocurrencies.
Looking at CoinGecko's privacy coins, almost every one of them had decent gains in the last 24 hours, the only one with a loss in the current DCR of -2.2%. XMR has the highest increment of 10.8%. The reason for such gains could be from the proposals made by the US, although it seems unlikely, but as always in the crypto world, there is a possibility.
Bloomberg - Biden Targets Crypto Taxes to Global Data Sharing Chance - https://www.bloomberg.com/news/articles/2021-06-02/biden-targets-crypto-tax-evaders-in-global-data- chance to share
be [in] crypto – Biden goes after Crypto tax cheats with global data sharing initiative – https://beincrypto.com/biden-crypto-tax-evaders-global-data-sharing/
be [in] crypto – Crypto Tax USA – How the IRS, Exchanges and Services Work Together – https://beincrypto.com/crypto-tax-usa-how-the-irs-exchanges-and-services-work-together/
CryptoDaily – US to step up monitoring of foreign crypto investors amid tax evasion concerns – https://cryptodaily.co.uk/2021/06/US-tighten-monitoring-of-foreign-crypto-investors