American businesses that receive payments in cryptocurrencies worth $10,000 or more will have to report those transactions to the Internal Revenue Service, the United States' Treasury mentioned on Thursday.
This simply puts crypto-coins on the same footing as cash: the IRS says "federal law requires a person to report cash transactions of more than $10,000," we note. By person, the tax-collection agency means "an individual, company, corporation, partnership, association, trust or estate."
The Treasury's announcement about Bitcoin et al just says "businesses" in its fairly vaguely worded, one-sentence announcement, though we imagine that'll be expanded at some point to person when this is all formalized.
Separately, on Thursday, Federal Reserve chairman Jerome Powell spoke of the risks of cryptocurrencies, and said the Fed will publish a paper this summer that will weigh up deploying its own digital currency.
Why is this happening?
Uncle Sam is stepping up its efforts to regulate digital currencies, from Dogecoin to Ethereum. As part of the latest administration's ambitious $1.8tn American Families Plan, which President Biden hopes to fund by undoing tax cuts for the rich and raising other levies, the government wants to thwart the use of cyber cash to enable financial crimes, including tax evasion.
Cryptocurrency transactions are likely to rise in importance in the next decade
“Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion,” the Treasury stated in a report [PDF] out today that dives into Biden's grand plan.
“Despite constituting a relatively small portion of business income today, cryptocurrency transactions are likely to rise in importance in the next decade, especially in the presence of a broad-based financial account reporting regime.”
Right now in the United States, cryptoassets are taxed more or less as if they were property, meaning you have to report gains or losses if you exchange cryptocurrency for cash, trade one type of coin for another, use crypto for payment at a merchant, buy an NFT using cryptocurrency, and so on, according to Coindesk.
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The Treasury is worried that businesses and traders can use cryptocurrencies to under-report this income.
“Although cryptocurrency is a small share of current business transactions, such comprehensive reporting is necessary to minimize the incentives and opportunity to shift income out of the new information reporting regime ... As with cash transactions, businesses that receive cryptoassets with a fair market value of more than $10,000 would also be reported on,” it explained.
The cryptomarket is tumultuous, especially right now. Prices for Bitcoin, Ethereum, and others, frequently fluctuate, and have fallen sharply lately for various reasons. Even something as simple as a tweet from Elon Musk can cause the market to skyrocket or slump. Netizens who back currencies like Dogecoin hope the digital dosh will one day be used as an efficient, fast, low-power cash equivalent for buying stuff like cars, homes, clothes, computers, food, and so forth. Thus, it really shouldn't be too much of a shock that the IRS wants to treat the coins as cash.
It’s likely that the Securities and Exchange Commission will also step in to regulate the technology; its chairman Gary Gensler has been outspoken on the need to protect investors and oversee crypto-exchanges. ®
PS: Speaking of exchanges, Robinhood this week said it will give its users "the opportunity to buy shares of companies at their IPO price, before trading on public exchanges."