Cryptocurrency transfers of more than $10,000 will have to be reported to US tax authorities under new Biden administration proposals that come amid a tightening of the regulatory environment for digital coins.
The US proposal, unveiled a day after China signalled a regulatory crackdown of digital currencies, is part of a broad set of proposals aimed at curbing tax evasion.
The price of bitcoin, the most actively traded cryptocurrency, fell 5 per cent after the US announced its proposal.
It followed a chaotic few hours of bitcoin trading on Wednesday when China’s central bank warned financial institutions about accepting cryptocurrencies as payment or offering related services and products. The price of bitcoin fell as much as 30 per cent after the comments before eventually recovering.
The US Treasury said cryptocurrency posed a “significant detection problem by facilitating illegal activity broadly including tax evasion”, echoing comments from the European Central Bank this week, which said that cryptocurrencies’ “potential use for illicit purposes” were a cause for concern.
The US proposal is part of a Treasury report showing how Joe Biden’s White House plans to close the so-called “tax gap” by strengthening the Internal Revenue Service. The report is the latest in a series of White House proposals that would lead to the wealthiest Americans paying significantly more tax.
The Biden administration intends to close the tax gap — the difference between taxes owed to the US government and those actually paid — by investing nearly $80bn in the IRS and expanding the revenue service’s ability to identify wealthy individuals who avoid paying taxes owed.
The proposals include new disclosure requirements for financial institutions, which would need to share information with the IRS about the total amounts flowing into and out of bank accounts, in addition to existing reporting.
According to the Treasury, the overall “tax gap” was $600bn last year, and is forecast to rise to some $7tn in the next decade if left unaddressed. The Treasury said roughly 99 per cent of taxes due on wages were paid each year, but compliance on “less visible” sources of income that were more likely to be associated with higher earners — such as proprietorship or rental incomes — was estimated to be far lower.
Treasury estimates suggest the proposed IRS overhaul would raise $700bn in extra tax revenue in the next 10 years, and $1.6tn in the following decade.
The Treasury said under the president’s proposals, audit rates would not rise for people making less than $400,000 a year.
The proposals are part of Biden’s $1.8tn American Families Plan, an ambitious legislative package that, if approved by Congress and signed into law, would usher in a major expansion of federal funding for child care, higher education and family and medical leave in the US.
The White House has proposed paying for the plan, in part, with roughly $1.5tn in tax increases on wealthy Americans — including a near doubling of levies on capital gains for people earning more than $1m. The proposed tax increases have sparked a backlash among some critics on Wall Street and in corporate America.
The plans to crack down on tax evasion may prove more politically palatable for lawmakers in Washington, particularly Republicans who have raised red flags about any reversal to Donald Trump’s 2017 tax cuts.
The American Families Plan, set out by the White House last month, is the third component of Biden’s far-reaching economic agenda, following the $1.9tn fiscal stimulus bill, which was signed into law in March, and the $2.3tn infrastructure proposals that are being debated on Capitol Hill.
Republicans have largely rejected the president’s proposals, accusing Democrats of wasteful spending that risks driving up inflation. GOP senators have offered a nearly $600bn counterproposal to the president’s infrastructure package, though Republican lawmakers have in recent days suggested they are open to a package with a price tag closer to between $800bn and $900bn.