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The United States government is stepping up compliance enforcement around cryptocurrency, and if you’re transacting $10,000 or more worth of crypto at a time via exchanges or banking services, then the IRS may soon want to know about it.According to a report released by the United States Treasury on Thursday, President Biden’s proposed tax enforcement strategy would add fresh scrutiny to cryptocurrency, requiring businesses that receive $10,000 or more in cryptocurrency to report such transactions to the Internal Revenue Service (IRS). In other words, centralized exchanges like Coinbase and Binance.US, as well as other cryptocurrency custodians or services, will have to report those high-value transactions. And so will any other US business that receives a large sum of cryptocurrency in one go.
Neeraj Agrawal, Communications Director for crypto policy think tank Coin Center, clarified to Motherboard that the proposed regulations would only apply to crypto transactions with an intermediary such as a centralized exchange or other business—not peer-to-peer transactions. In other words, you would not have to report crypto transactions made directly from your wallet to another. Indeed, the Treasury report specifies that businesses would be targeted: “Further, as with cash transactions, businesses that receive cryptoassets with a fair market value of more than $10,000 would also be reported on,” the report states.Agrawal added that it “should not” apply to decentralized exchanges like Uniswap, “at least under our current understanding of the world.” However, he cautioned that there is ongoing rulemaking regarding how the IRS treats such exchanges.The Biden administration’s proposed rule is designed to increase tax compliance for cryptocurrency trades, aiming to punish tax evaders and thus generate more revenue as a result. “Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion,” the Treasury report reads.While the idea of increased IRS oversight might rankle some crypto die-hards, there is potential upside to the proposed rule: it would bring cryptocurrency reporting in line with cash reporting of large transactions from businesses. Agrawal said that Coin Center is watching to see whether updated forms bring “more invasive” scrutiny towards cryptocurrency. “Parity with cash is sort of the best outcome,” he told Motherboard.Over the last couple years, the IRS has ramped up its tactics regarding cryptocurrency tax enforcement. In July 2019, the agency mailed letters to more than 10,000 cryptocurrency users, warning of potential tax violations and reminding them to report crypto transactions. Last year, the IRS added a question about handling cryptocurrency assets to the first page of the standard 2020 Form 1040 tax return, right near the top. Since last month, federal judges have approved summons to cryptocurrency exchange Kraken and payments services firm Circle for records regarding U.S. customers who traded more than $20,000 in a year between 2016 and 2020.Already in an incredibly tumultuous period, Bitcoin’s price sank about 7 percent upon first news of today’s U.S. Treasury report, according to crypto tracking platform CoinGecko, but has slightly improved since. Ultimately, while the report suggests a potential new wrinkle to oversight of cryptocurrency transactions, Agrawal said that it shouldn’t be news to US traders that they need to report crypto dealings to the IRS.“Traders need to pay taxes,” he said. “It’s been well established. That’s not a surprise.”