Biden targets crypto tax evaders in the global pitch for data exchange


The Biden government has proposed requiring the collection of data on foreign cryptocurrency investors operating in the United States. strive for Strengthen international cooperation to help broaden the fight against tax evasion.

The Ministry of Finance in its “Revenue Proposals Greenbook, released last Friday, suggested that cryptocurrency brokers such as exchanges and hosted wallet providers provide information to the IRS about foreign individuals who indirectly hold accounts with them.

“You definitely feeling that there is a blind spot for foreign owners right now, ”said Jorge Castro, tax attorney at Miller & Chevalier Chartered, who previously worked for the IRS and as a Democratic tax advisor on Capitol Hill. The proposal is aimed at “certain passive companies and their significant foreign owners,” the Treasury Department said.

The US could then pass this information on to foreign governments in exchange for information about US persons hiding cryptocurrency assets and evading their US tax liabilities through the use of 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 enforcement to pay trillions of dollars in proposed longer-term spending programs. It also coincides with the Treasury Department’s commitment with colleagues around the world to set a global minimum tax for businesses.

Widening concerns

Officials say cryptocurrencies have made a significant contribution to the growing tax gap – the difference between taxes owed and taxes actually paid on time – which Internal Revenue Service Commissioner Charles Rettig estimates could exceed $ 1 trillion a year.

There can also be an element of cybersecurity. White House press secretary Jen Psaki said Wednesday that expanding analysis of cryptocurrencies is one of the steps the government is taking to contain cyberattacks.

The Greenbook proposal would be a continuation of the information sharing the US is already doing with foreign governments to expose US citizens hiding assets in unknown foreign bank accounts, said Charles Kolstad, partner at Withers international law firm.

The Blockchain Association, whose members include trading platforms that would be subject to the new reporting requirement, declined to comment. The Kraken and Coinbase cryptocurrency exchanges did not return requests for comments.

Read more: Treasury is aiming for crypto transfers of over $ 10,000 reported to the IRS

The proposal to require reporting on foreign owners appears to be aimed at those setting up mailbox companies in the US to conduct cryptocurrency transactions, said former IRS General Counsel Michael Desmond, who is now a partner at Gibson, Dunn & Crutcher LLP is.

The IRS’s Criminal Investigation division has already worked with authorities in other countries – Australia, Canada, the UK, and the Netherlands – to pursue global tax fraud cases, including those that use cryptocurrencies. To the extent permitted by the laws of the individual countries, the agencies exchange information and coordinate their efforts.

“The global nature of the crypto market offers US taxpayers opportunities to hide assets and taxable income by using offshore crypto exchanges and wallet providers,” says the Greenbook proposal.

The Treasury Department was already working on proposed regulations under applicable law earlier this year that would require cryptocurrency brokers to report certain information to the IRS, including their customers’ identities and gross proceeds from sales.

Account flows

According to Lisa Zarlenga, partner at Steptoe & Johnson LLP and former tax advisor to the Treasury Department, the Greenbook suggests that the project can still go through the regulatory process, but the new requirement for indirect foreign investors needs to be added by law.

The Biden government would also need legislation to implement its broader proposal requiring financial accounts to be reported by banks and other financial institutions, including cryptocurrency exchanges. The Green Paper provides more details on this provision, which was presented in previous overviews published by the Administration.

The proposal would require financial institutions to report inflows and outflows of gross accounts with a breakdown into cash, transactions with a foreign account, and transfers to and from another account of the same owner. The requirement would apply to all business and personal accounts, with the exception of accounts below a $ 600 threshold.

Read more: Biden wants banks to report account flows to the IRS to support tax revenue

The Greenbook also proposed separate reporting requirements for situations where taxpayers buy cryptocurrency assets from one broker and then transfer them to another. In addition, companies that receive cryptocurrency transfers worth more than $ 10,000 would have to report these transactions to the IRS.

“They are really trying to gather as much information as possible about the buying, selling and movement of digital assets,” said Evan Fox, director at Marcum LLP. The fact that they have so much interest in cryptocurrency validates the asset class – which many in the industry see as a good thing, he said.

The Biden government is proposing that all new reporting requirements go into effect in 2023, which some tax professionals believe could be a quick turnaround for the IRS and the private sector.

“That seems ambitious,” said Castro.

– With support from Nancy Cook

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