According to estimates, crypto brokers are allegedly dodging at least half of their tax duties, leaving the United States with a worrying tax shortfall. Sen. Elizabeth Warren (D-Massachusetts) is leading a group of left-leaning senators who are urging federal officials to take immediate action in response to this problem.
Their main objective is to impose stronger restrictions in order to close the crypto tax gap, which experts estimate to be at least $50 billion.
The 2021 Infrastructure Investment and Jobs Act, which required additional reporting requirements for digital currency trading, has made it urgent to address this issue.
Despite a deadline set by Congress for the end of the current year, the Treasury Department and Internal Revenue Service (IRS) have yet to enact the rules required to enforce these obligations.
Going After Crypto Tax Evaders
Legislators are concerned about this delay because it will give the big cryptocurrency merchants more time to cheat taxes the longer the rules are delayed.
In a letter to federal authorities, senators Warren, Bob Casey (D-Pennsylvania), Richard Blumenthal (D-Connecticut), and Bernie Sanders (I-Vermont) pleaded with them to promptly implement the crypto tax reporting standards.
The letter emphasizes the negative effects of delay and warns that failing to comply with the regulations by December 31, 2023, might result in a loss of tax income of approximately $1.5 billion in 2024.
Given the urgent need to pay several government programs and services, this huge revenue loss would be an unacceptable result.
According to a report by the Joint Committee on Taxation of Congress, the national tax gap—which measures the total amount of taxes due but unpaid each year—is made up of 10 percent of the enormous crypto tax gap.
Total crypto market cap at $1.12 trillion on the daily chart: TradingView.com
IRS Faces Daunting Task Vs. Tax Cheats
The difficulty for the IRS to precisely identify cases of tax avoidance is further exacerbated by the evasive nature of bitcoin transactions and the anonymity provided by the majority of exchanges.
Based on IRS data from 2017, Barclays analysts calculated the $50 billion sum last year. Nevertheless, they think that the real number is probably far higher given the current rise in bitcoin activity.
According to the Treasury Department’s proposed regulations, third-party companies like Coinbase will have to disclose comprehensive information about customers’ cryptocurrency trading, including profits and losses.
These thorough reporting specifications may greatly improve the IRS’s capacity to identify and pursue tax evaders, particularly those involved in extensive crypto trading.
Biden Supports Tax Evasion Clampdown
United States President Joe Biden supports a crackdown on crypto tax evasion while noting the existence of crypto loopholes and the fact that they give wealthy people another way to hide their income.
Sen. Warren’s concerns about money laundering, fraud, and the illegal trade in firearms might be addressed by implementing and enforcing these restrictions, which would also stop many fraudulent practices inside the cryptocurrency business.
The potential economic impact is what makes it urgent to put the proposed rules into action. Rapid action is required to stop further losses in tax income because there are billions of dollars on the line.
Senators Warren, Casey, Blumenthal, and Sanders are adamant that action must be taken immediately since every day that passes permits tax evaders and their cryptocurrency middlemen to take advantage of the system.
Featured image from The Globe and Mail/iStock