To combat tax evasion within the cryptocurrency industry, Democrat lawmakers have intensified their calls for the IRS and the Treasury to promptly publish comprehensive tax reporting guidelines for cryptocurrency brokers, which were mandated in the $1.2 trillion infrastructure bill passed in August 2021. Democratic Senators Elizabeth Warren (D-Mass.), Bob Casey (D-Pa.), Richard Blumenthal (D-Conn.), and Bernie Sanders (I-Vt.) have united to warn the two agencies that time is running out to set the proposed rules.
Amid concerns that billions of dollars are being lost annually due to tax dodging crypto users, the lawmakers emphasized the urgency of enforcing stricter regulations to close the fiscal hole. They cited research indicating that crypto tax evaders may be depriving the IRS of at least $50 billion a year, possibly even more. Such substantial revenue losses pose significant challenges to the U.S. government’s financial stability, necessitating immediate action to curb potential tax abuses within the crypto sector.
The proposed rules aim to enhance crypto tax reporting by including businesses acting as “brokers” for cryptocurrencies, including exchanges. However, despite the infrastructure bill becoming law and the White House concluding a review of the rules in May, the Treasury and IRS have yet to release them. With the implementation deadline less than six months away, the delay has raised concerns among lawmakers who fear that tax evaders and unscrupulous crypto intermediaries may exploit existing loopholes and continue diverting substantial sums from the government.
Given the chance, tax evaders and the crypto intermediaries willing to aid them will continue to game the system, exploit loopholes, and siphon off billions of dollars a year from the U.S. government
Warren and her fellow senators have been vocal critics of the crypto industry, with Warren even urging Fidelity to scrap its 401(k) Bitcoin plan and suggesting that the illegal fentanyl drug trade is financed through cryptocurrencies. Their persistent advocacy for stricter regulations is rooted in their determination to prevent further revenue loss and hold crypto users accountable for their tax obligations.
The potential impact of the proposed rules on the American crypto sector remains a point of contention. While some industry players may welcome increased regulatory clarity and oversight, others could express concerns over potential stifling effects on innovation and competitiveness. Striking a balance between enforcing tax compliance and fostering a supportive environment for legitimate cryptocurrency businesses will be crucial in determining the long-term implications on the industry’s growth.
As the deadline for rule implementation approaches, pressure on the Treasury and IRS to release the guidelines and begin vigorous enforcement will continue to escalate. The fate of billions of dollars in potential tax revenue hangs in the balance, and the outcome of this debate could shape the future landscape of the American crypto sector. With lawmakers determined to plug the fiscal hole, it remains to be seen how the crypto community will respond and adapt to the evolving regulatory landscape.