In a letter addressed to Treasury Secretary Janet Yellen and IRS Commissioner Daniel Werfel, two members of the United States Congress have expressed their concerns regarding tax compliance practices in the crypto industry. U.S. Representatives Brad Sherman and Stephen Lynch highlighted the industry’s potential as a source of tax evasion and its contribution to the nation’s tax gap.
Citing an audit report from September 2020 by the Treasury Inspector General for Tax Administration (TIGTA), the lawmakers pointed out the IRS’s difficulty in identifying taxpayers involved in crypto transactions due to the lack of reporting requirements. Despite the Infrastructure Investment and Jobs Act (Bipartisan Infrastructure Bill) signed into law in November 2021, which mandated the reporting of crypto transactions starting in 2023, the congresspeople emphasized that the proposed regulations are yet to be promulgated.
Sherman and Lynch emphasized the urgent need for the release of these proposed regulations to close the tax gap and ensure full tax compliance within the cryptocurrency industry. They believe that these measures will be instrumental in holding individuals and entities accountable for their crypto-related tax obligations.
Moreover, the Biden administration’s proposed Digital Asset Mining Energy (DAME) tax on cryptocurrency miners has garnered attention. Initially introduced in Biden’s FY 2024 budget in March 2023 and renewed in May, the proposed 30% tax on crypto mining did not make it into the recent legislation addressing the U.S. debt ceiling. However, industry experts like Nic Carter, co-founder of CoinMetrics, suggest that this tax could resurface in future omnibus bills.
As regulatory scrutiny intensifies and avenues for new developments become limited, companies and mining firms are increasingly seeking opportunities outside of North America. Latin America and the Middle East have emerged as attractive destinations for crypto investments, as exemplified by Volcano Energy’s ambitious project in El Salvador. This trend highlights the global nature of crypto mining and the need for companies to adapt to evolving regulatory landscapes.
The delay in implementing comprehensive tax regulations, combined with the uncertainty surrounding mining taxes, could have significant implications for the U.S. crypto sector. Without clear guidelines, tax compliance may remain a challenge, undermining efforts to address the nation’s tax gap and potentially hindering the industry’s growth. Furthermore, as companies explore opportunities abroad, the United States risks losing its position as a hub for crypto innovation and investment.
Industry experts and crypto enthusiasts argue that establishing a comprehensive and predictable regulatory environment is crucial for attracting investments, encouraging innovation, and ensuring a level playing field for all participants. The lack of clarity and regulatory uncertainty can deter potential investors and stifle growth in the crypto sector.