Overview
On May 20, 2021, the U.S. Department of the Treasury (“Treasury”) released the American Families Plan Tax Compliance Agenda, a report detailing the Biden administration’s proposed measures to raise $700 billion in additional tax revenue over the next decade through the Internal Revenue Service (“IRS”) and its enforcement-related efforts (the “Report”). Additional detail about these proposals will likely be available in Treasury’s “General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals,” the so-called Greenbook, which is expected to be released on May 28.
The Report finds that one of the best ways to increase the overall tax compliance rate is by increasing third-party reporting requirements. The Report notes that, when income is subject to both third-party information reporting and withholding (such as wages), compliance is around 99%; when the income is subject to substantial information reporting but no withholding, compliance is around 95%; when the income is subject to limited information reporting, compliance is around 83%; but when income is not subject to information reporting (such as proprietorship or rental income), compliance drops to around 45%.[1]
The proposed new reporting regime would require two new filings related to cryptocurrency transactions. In fact, the Report specifically states that the growth of virtual currency is a significant concern as it “already poses a significant detection problem by facilitating illegal activity broadly including tax evasion.”[2]
The first proposed new filing would build on the existing framework of IRS Form 1099-INT, which requires financial institutions to report interest income paid to U.S. persons in amounts of $10 or more, by expanding the reported data to include “gross inflows and outflows on all business and personal accounts from financial institutions, including bank, loan, and investment accounts . . . .”[3] The Report further clarifies for purposes of this reporting regime, the term “account” includes those at “cryptoasset exchanges and custodians.”[4]
It is not clear how much this proposed new information reporting requirement will add. The IRS is already working on regulations to implement an information reporting regime for cryptocurrency exchanges (and potentially other intermediaries) under its already-existing statutory authority to require information reporting by brokers.[5] The financial account reporting in some ways seems narrower (in terms of the information that must be reported) than broker reporting, and in some ways (in terms of which intermediaries it applies to) potentially broader.
The second proposed new filing would expand the reporting of cash transactions[6] to include cryptocurrency transactions. As such, businesses that accept cryptocurrencies would be required to report transactions that involve cryptoassets with a fair market value of more than $10,000. Such a requirement might deter the use of cryptocurrency to make larger consumer purchases. For example, if consumers use cryptocurrency to make large purchases (e.g., Overstock, Expedia, Christie’s), the transaction would be reported, but if they use a credit card, it wouldn’t.
If you have any questions about these proposals, please contact a member of Steptoe’s Blockchain & Cryptocurrency Group.
[1] The American Families Plan Tax Compliance Agenda, U.S. Dep’t of Treas., at 5 (May 2021), https://home.treasury.gov/system/files/136/The-American-Families-Plan-Tax-Compliance-Agenda.pdf (last visited May 21, 2021).
[2] Id. at 20-21.
[3] Id. at 19.
[4] Id.
[5] See I.R.C. § 6045.
[6] See IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, available at: https://www.irs.gov/pub/irs-pdf/f8300.pdf.
