American Families Plan’s Cryptocurrency Tax Compliance Agenda
By Suellen DeOliveira, Senior Accountant, Tax & Business Services
Crypto is gaining currency, with more businesses willing to accept Bitcoin and other cryptocurrencies as payment. The absence of specific rules related to the reporting of business income from cryptocurrency transactions has created a “tax gap” that the U.S. Treasury Department intends to close.
On May 20, 2021, Treasury released a report that included a set of proposed tax compliance initiatives with the goal of closing the gap between taxes owed and taxes actually paid. These measures are encompassed in the American Families Plan, which establishes rules for the proper reporting of cryptocurrency.
Under current regulations, the IRS may not be able to trace crypto income when such transactions go unreported by exchanges, businesses and financial institutions, causing opportunities for tax evasion. Under the new proposed reporting rules, banks and other financial institutions would be required to report information about account inflows and outflows to the Internal Revenue Service in order to facilitate detection of unreported income. Also included in the plan is a new rule that would require businesses to file a current transaction report when they receive cryptocurrency worth more than $10,000, just as most businesses are required to report cash payments in these amounts. These reports would help the IRS detect tax evasion and money laundering, similar to 1099 forms, which are provide information to the IRS about all types of income received.
Final rules regarding the reporting of cryptocurrency transactions are not yet established, but businesses that accept cryptocurrency as payment are advised to prepare now by maintaining records and ensuring that such payments are reported as income.
Should you have any questions related to cryptocurrency and reporting requirements, contact your Marcum tax advisor.