Feds urge crypto regulations to fight tax avoidance, cybercrime
After years of ambivalence, the U.S. government is inching toward regulating cryptocurrencies as part of a broad effort to address tax avoidance.
What’s going on: Bitcoin, Ethereum, and other cryptocurrencies — valued at more than $2T collectively — have swelled in popularity and allow investors to remain anonymous. That has the U.S. Treasury Department worried about tax evasion.
Tax Doge-ers: A person that receives more than $10,000 in cash — from selling a used car to winning the lottery — must file a currency transaction report. However, the same rules do not apply to crypto, meaning that crypto income may go unreported and untaxed. And because investors can send or receive crypto without an exchange, it’s harder for the IRS to detect transactions (which is part of its allure to some investors).
The taxman: Under Biden’s American Families Plan, crypto investors would have to report when they receive more than $10,000. The plan would also provide an additional $80 billion to the IRS to beef up its oversight resources to address crypto assets, which the Treasury Department expects to continue growing over the next decade.
“Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion. … 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.” —U.S. Department of the Treasury
A broader challenge: Biden’s crypto efforts are part of his administration’s strategy to close the “tax gap,” or the difference between taxes owed and what’s actually paid. The Treasury Department reported that the tax gap totaled nearly $600 billion in 2019 and will rise to about $7 trillion in the next decade. Meanwhile, the U.S. government debt as a ratio to GDP has soared above 100 percent.
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Crypto congressional caucus: Congress is also taking steps toward crypto regulations as a bipartisan group of senators recently launched the Financial Innovation Caucus. The caucus aims to support “responsible innovation” for the U.S. financial system, including digital assets. Caucus co-founder and crypto enthusiast Senator Cynthia Lummis, R-Wy., said the U.S. needs a more coordinated regulatory approach toward crypto — in part to compete with China.
“Clearly, we need to bring our financial system into the 21st Century. That’s why we need the Financial Innovation Caucus. This caucus will educate senators of both parties about digital assets, blockchain, faster payments, and how the United States can surpass countries like China.” —Senator Cynthia Lummis
Stablecoins: The Treasury Department’s Office of the Comptroller of the Currency recently began allowing banks to use crypto stablecoins for payments and participate in independent blockchain networks. A stablecoin is a cryptocurrency where the price is pegged to a cryptocurrency, fiat money, or to exchange-traded commodities. Stablecoins are in conflict with the decentralized nature of cryptocurrencies, and for that reason, face headwinds among die-hard enthusiasts.
Other pressures: Lawmakers and federal regulators are also increasingly worried about opaque crypto transactions that may fund criminal activity or terrorism. Blockchain data firm Chainalysis reports that crypto-related crimes fell in 2020, but that crypto-funded ransomware attacks are up 311 percent year-over-year.
**Racidware attack:**JBS, the world’s largest meat processor, shut down nine of its U.S. beef plants after a ransomware attack on June 1. The cyberattack has renewed calls for the government to better regulate cryptocurrencies, which are often used to pay hackers to commit ransomware and other cyberattacks.
What they’re saying: Dmitri Alperovitch, co-founder of the Silverado Policy Accelerator, told NPR that the White House must regulate cryptocurrencies and encourage financial reforms to help prevent more attacks.
“ There are two things that the Biden administration should do immediately. The first is to go after the cryptocurrency like Bitcoin. That is the oxygen that fuels this ransomware fire. … The second thing is we have to do some deterrence. The vast majority of these criminals are operating out of Russia. And while there's no evidence that the Russian government is involved in these attacks, they're certainly aware of many of these criminals. And we have to confront Putin and demand that these people be arrested and prosecuted right away. ” —Dmitri Alperovitch
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