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The U.S. Treasury Department announced on Thursday that it is imposing additional reporting requirements for crypto transactions. Transfers involving digital currencies worth $10,000 or higher need to be reported to the Internal Revenue as part of the government’s efforts to crackdown on tax evasion and illegal activities that involving virtual currencies.
The explosive growth of the digital assets market has become a cause of concern for the government entity. “Still another significant concern is virtual currencies, which have grown to $2 trillion in market capitalization,” the Treasury Department said in a release. “Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion.”
The move is part of the Biden administration's broader plan to curb tax evasion and promote compliance, according to CNBC. The Treasury Department estimates that the difference between taxes owed by taxpayers and taxes paid amount to almost $600 billion in 2019. While income from the industry is still relatively small, the government expects the sector to grow significantly in the near future.
“This is why the President’s proposal includes additional resources for the IRS to address the growth of cryptoassets,” the Treasury Department said. “Despite constituting a relatively small portion of business income today, cryptocurrency transactions are likely to rise in importance in the next decade, especially in the presence of a broad-based financial account reporting regime. Within the context of the new financial account reporting regime, cryptocurrencies and cryptoasset exchange accounts and payment service accounts that accept cryptocurrencies would be covered.”
Under the new reporting regime, the department set the threshold at $10,000. “Further, as with cash transactions, businesses that receive cryptoassets with a fair market value of more than $10,000 would also be reported on,” the department added. “Although cryptocurrency is a small share of current business transactions, such comprehensive reporting is necessary to minimize the incentives and opportunity to shift income out of the new information reporting regime.”
Previously, there were concerns that the Treasury and the Securities and Exchange Commission would take a more active role in regulating the crypto industry. However, Raymond James analyst Ed Mills said that this would boost the legitimacy of the asset class in the long run.
“In the short-term, this could cause headline risk,” he said. “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.”
