(June 4): The Biden administration has proposed to require the collection of data on foreign cryptocurrency investors active in the United States, with the aim of strengthening international cooperation to contribute to a broader crackdown on the tax evasion.
The Treasury Department, in its “Green Paper” of revenue proposals released last Friday, proposed that cryptocurrency brokers, such as exchanges and hosted wallet providers, provide information to the IRS about people. foreigners indirectly holding accounts with them.
“They clearly feel that there is a blind spot for foreign owners right now,” said Jorge Castro, tax attorney at Miller & Chevalier Chartered who previously worked at the IRS and as a Democratic tax advisor on Capitol Hill. . The proposal concerns “certain passive entities and their significant foreign owners,” the Treasury said.
The United States could then provide this information to foreign governments and, in return, receive information about any American individual concealing cryptocurrency assets and dodging their US tax obligations using offshore exchanges and wallet providers.
The move, which would require congressional legislation, is part of a campaign by President Joe Biden’s administration to strengthen tax law enforcement to help pay for billions of dollars in long-term spending programs proposed. It also coincides with the Treasury’s commitment with counterparts around the world to establish a global minimum corporate tax.
Officials say cryptocurrencies have contributed significantly to the growing tax gap – the difference between taxes owed and actually paid on time – which Internal Revenue Service Commissioner Charles Rettig has estimated could exceed 1 Trillion dollars a year.
There may also be an element of cybersecurity. White House press secretary Jen Psaki said on Wednesday that expanding cryptocurrency analysis was one of the measures taken by the administration to help curb cyber attacks.
The Green Paper’s proposal would be a continuation of the information exchange the United States already has with foreign governments to uncover U.S. citizens hiding overseas assets in undisclosed foreign bank accounts, said Charles Kolstad, partner. from the international law firm Withers.
The Blockchain Association, whose members include trading platforms that would be subject to the new reporting requirement, declined to comment. Cryptocurrency exchanges Kraken and Coinbase did not return requests for comment.
The proposal to require foreign owner reports appears to be aimed at those who set up shell companies in the United States to conduct cryptocurrency transactions, said former IRS chief attorney Michael Desmond, who is now partner at Gibson, Dunn & Crutcher LLP.
The IRS’s criminal investigations division has previously worked with agencies in other countries – Australia, Canada, the UK, and the Netherlands – to prosecute global tax frauds, including those using cryptocurrency. To the extent permitted by the laws of each country, agencies share information and coordinate their efforts.
“The global nature of the crypto market offers U.S. taxpayers the ability to disguise taxable assets and income using offshore crypto exchanges and wallet providers,” the Green Paper proposal said.
The Treasury, before the start of this year, was already working on a draft regulation under existing law that would require cryptocurrency brokers to report certain information to the IRS, including the identity of their clients and the gross sales revenue.
The green paper suggests the project may still move forward through the regulatory process, but the new requirement for indirect foreign investors will need to be added through legislation, according to Lisa Zarlenga, a partner at Steptoe & Johnson LLP and former Treasury tax adviser.
The Biden administration would also need legislation to pass its broader proposal to require reporting of financial accounts by banks and other financial institutions, including cryptocurrency exchanges. The Green Paper provides more details on this provision, which was previewed in the previous outlines published by the administration.
Under the proposal, financial institutions would have to report gross inflows and outflows from accounts with a breakdown for physical cash, transactions with a foreign account, and transfers to and from another account with the same owner. The requirement would apply to all business and personal accounts except those with a threshold below $ 600.
The Green Paper also proposed separate reporting requirements for situations where taxpayers buy cryptocurrency assets from one broker and then transfer them to another. Additionally, businesses that receive cryptocurrency transfers worth more than $ 10,000 should report these transactions to the IRS.
“They are really looking to put together as much information as possible about the buying, selling and movement of digital assets,” said Evan Fox, principal at Marcum LLP. The fact that they are so interested in cryptocurrency validates the asset class – which many in the industry see as a good thing, he said.
The Biden administration is proposing that all new reporting requirements take effect in 2023, which some tax experts believe could be a quick turnaround for the IRS and the private sector.