IRS Poised to Take Aim at Cryptocurrency Transactions

As expected with the increased rise of cryptocurrency, the Senate recently proposed a plan wherein the IRS would more aggressively scrutinize and tax cryptocurrency transactions—which, to this point, have been loosely regulated. The intent of the plan is to force disclosures, bolster transparency, and, critically, help pay for the Senate’s bipartisan infrastructure package. With the proposed changes, the federal government is estimated to “raise $28 billion over a decade, according to an estimate by the Joint Committee on Taxation, which analyzed the plan.” The plan involves new reporting and compliance requirements for taxpayers who transfer crypto assets between brokers, as well as businesses that receive crypto assets worth more than $10,000. Not surprising, there are many concerns being raised from cryptocurrency insiders in response to the proposed plan.

Perianne Boring, president of the Chamber of Digital Commerce, voiced her concerns, which she believes are directly related to the Senate legislation rushing its draft legislation. “This can have a pretty significant impact on the development of some of the most important areas of innovation or will likely kill part of the industry or drive it overseas. We should be embracing this technology, not regulating it out of existence.” However, in response, Drew Nirenberg, a spokesman for Senator Rob Portman—the Ohio Republican who assisted in drafting the legislations—stated that “This legislative language does not redefine digital assets or cryptocurrency as a ‘security’ for tax purposes, impugn on the privacy of individual crypto holders, or force nonbrokers, such as software developers and crypto miners, to comply with I.R.S. reporting obligations. It simply clarifies that any person or entity acting as a broker by facilitating trades for clients and receiving cash must comply with a standard information-reporting obligation.”

Needless to say, the Senate’s proposed legislation is causing quite a bit of uncertainty to cryptocurrency brokers and investors. But it appears this is just the beginning of the IRS’s enhanced involvement with cryptocurrency.