US IRS Sees Increase in Crypto Tax Investigations
The US Internal Revenue Service (IRS)’s Investigations Unit has reported a rise in investigations related to crypto tax for the fiscal year 2023. Bloomberg reports that the IRS’s Criminal Investigations Unit is handling an increasing number of cases involving crypto tax, ranging from failure to report capital gains to concealing ownership of cryptocurrencies.
Crypto Tax Evasion Cases Rise
The IRS’s annual report reveals that the agency has initiated over 2,676 cases involving $37 billion related to tax and financial crimes in the fiscal year 2023. According to the Investigations Unit, these investigations involve unreported income from the sale of cryptocurrencies, income earned from mining, and income received in the form of cryptocurrencies. They also include evasion of payment violations, where taxpayers fail to disclose ownership of cryptocurrencies.
US Pushes for New Tax Reporting Guidelines
In an effort to prevent revenue loss from crypto-related activities, the US has introduced new tax reporting guidelines. The proposed rules aim to close the tax gap, address the risks of tax evasion in the digital asset space, and ensure a level playing field for everyone. These rules, set to take effect in the next two years, would require crypto brokers to register new information on users’ transactions with the IRS.
Coinbase Tax VP Criticizes Proposed Regulations
Following the Senate’s call for the speedy implementation of new tax rules, Coinbase’s Vice President of Tax, Lawrence Zlatkin, has requested revisions to the proposed regulations. Zlatkin raised concerns about user privacy and the unequal treatment of crypto compared to traditional finance. He criticized the rules for imposing excessive tracking on Americans, lacking parity with financial services, burdening users with duplicative reporting, violating tech neutrality, setting unrealistic compliance timelines, and missing opportunities to leverage blockchain for taxpayer compliance.
Hot Take: Increased Crypto Tax Investigations Reflect Growing Scrutiny
The increasing number of crypto tax investigations by the US IRS signifies a growing focus on ensuring compliance in the cryptocurrency space. With the rise in adoption and transactions involving cryptocurrencies, tax authorities are keen to close the tax gap and tackle evasion. The new tax reporting guidelines aim to address these concerns and establish a standardized framework for reporting crypto transactions. However, there are concerns about user privacy and potential drawbacks, as highlighted by Coinbase’s Tax VP. As governments continue to navigate the taxation of cryptocurrencies, striking a balance between compliance and innovation will be crucial.
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