From biden Income Proposal for Fiscal Year 2022 aims to catch crypto tax evaders by enforcing existing reporting rules and information sharing agreements between jurisdictions.
What is information reporting?
Reporting is the main way that regulators like the IRS know about your crypto activity. Cryptocurrency exchanges are required by law to collect your personally identifiable information (name, address, and social security number) and report your annual activity to the IRS using forms such as 1099-K, 1099-B, and 1099-MISC. If exchanges do not report this information correctly, they are subject to heavy penalties.
1099-K Reports Expanded
Currently, crypto exchange users with $ 20,000 in gross volume Y 200 transactions in a given year receive Form 1099-Ks. This form displays personally identifiable information and gross income per month.
The proposed guidance lowers the 1099-K reporting threshold to $ 600 and subjects more crypto exchange users to IRS oversight. It also expands the data reported on Form 1099-K to include gross purchases, physical cash, payments to and from foreign accounts, and inbound and outbound transfers. If adopted, this new reporting system would take effect after December 31, 2022.
Report transactions over $ 10,000
The proposal also recommends an additional information requirement when companies receive cryptocurrencies in excess of $ 10,000 in a transaction. For example, let’s say you bought a car with 1 bitcoin valued at $ 40,000. The proposed provision would require the concessionaire to report that transaction along with its personally identifiable information to regulators. This provision is also applicable to cryptocurrency exchanges when users move assets above $ 10,000 between exchanges.
Enhanced communication between exchanges globally
Under Biden’s proposal, cryptocurrency can easily be used for tax evasion due to its digital nature and the ability to trade, store, and hide on offshore exchanges without having to leave the country. The United States has already established information-sharing relationships with foreign jurisdictions to share information about bad actors.
The proposal seeks to strengthen these existing relationships by sharing more information. automatically (global framework for automatic information exchange regarding crypto assets) with foreign jurisdictions to catch bad actors. This system will discover US people who have crypto assets in overseas accounts under shell companies. If adopted, it will take effect after December 31, 2022.
Disclaimer: This post is informational only and is not intended to be tax advice. For tax advice, consult a tax professional.