US Congress Exposes Tax Dodging In Crypto Industry

Key Points:

• Members of the United States Congress demand tax regulations for the crypto industry.
• Crypto industry is a major source of tax evasion and a significant part of the US tax gap.
• The IRS is unable to identify pro-crypto taxpayers due to lack of reporting.

Members of the United States Congress, Brad Sherman and Stephen Lynch, have recently written a letter to the Treasury and the Internal Revenue Service (IRS) requesting the implementation of tax regulations on the cryptocurrency industry.

The Congressmen raised concerns about the crypto industry’s tax compliance practices, stating that for years, it has been a major source of tax evasion and a significant part of the United States’ tax gap.

The Congressmen cited an audit report from September 2020 which pointed out the IRS’ inability to identify taxpayers involved in cryptocurrency, as no reporting requirements were in place. To address this issue, the Infrastructure Investment and Jobs Act (Bipartisan Infrastructure Bill) was signed into law by President Joe Biden in November 2021, requiring taxpayers to report cryptocurrency transactions starting in 2023. However, the Congressmen stated that the proposed regulations for the act have yet to be promulgated.

In light of this delay, Congressmen Sherman and Lynch have called for the prompt release of the proposed regulations to “close the tax gap and bring the cryptocurrency industry into full tax compliance.” The Congressmen believe that the implementation of such regulations will help the IRS identify pro-crypto taxpayers and enhance tax compliance in the industry.

In May, the Biden administration renewed its push for a 30% Digital Asset Mining Energy (DAME) tax on cryptocurrency miners, which was first announced as part of Biden’s FY2024 budget in March 2023. However, the proposed crypto mining tax did not make it into the May legislation that addressed raising the U.S. debt ceiling.

Although concerns about the 30% tax on crypto mining have deflated, crypto advocates believe that it is a temporary arrangement. Coin Metrics co-founder Nic Carter thinks that the administration would re-attempt to impose the tax in some omnibus bill in the future.

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