Treasury Department wants new encryption reporting requirements in $3.5 trillion budget reconciliation bill

Roll Call reported, citing an anonymous government official, that the Biden administration hopes to include new crypto reporting requirements in the upcoming $3.5 trillion budget reconciliation bill. U.S. cryptocurrency companies (i.e. exchanges) are required to report data on non-U.S. users; this information can be exchanged with other countries to ensure that crypto traders pay taxes.

The U.S. government wants to increase reporting requirements for cryptocurrency businesses on foreign account holders so the U.S. can share the information with global trading partners.

The Treasury Department under President Biden has said it will exchange information with other countries as a way to get crypto holders to pay their taxes at tax time. The Treasury believes these actors are setting up corporate entities to play a multi-billion dollar shell game with offshore exchanges and wallets. The United States needs information from other countries to crack down on this.

Just this month, crypto think tank Coin Center and advocacy group Blockchain Association came out against a $1 trillion infrastructure package that the House of Representatives is set to vote on in September.

While the provision is intended to help pay for the $28 billion bill by tightening tax reporting requirements, critics say it is overly broadly worded and could require miners and validators to collect name and address information about the people whose transactions they are processing, a nearly impossible task that could put the industry in an existential crisis.

“We are not against crypto tax reporting requirements (in fact, we have been asking for reporting guidance for years). We are against last-minute additions to ‘must pass’ bills outside of regular order and with little or no public input,” Coin Center Executive Director Jerry Brito tweeted.

A surge in the number of shell companies set up overseas by U.S. taxpayers to avoid taxes, including on cryptocurrency gains, requires stricter reporting measures, according to the Treasury Department.

The Treasury Department's green paper states: "The global nature of the crypto market provides U.S. taxpayers with opportunities to use offshore crypto exchanges and wallet providers to conceal assets and taxable income. U.S. taxpayers also attempt to circumvent U.S. tax returns by creating entities through which they can act. To combat the possibility that crypto assets are used for tax evasion, third-party information reporting is essential to help identify taxpayers and support voluntary taxation."

To get that information, however, U.S. officials need to be able to provide the same data on their own citizens with U.S. accounts to other countries as part of so-called tax information exchange agreements.

The Treasury Department’s proposal would implement the new rules starting in 2023 and apply to cryptocurrency exchanges and account holders’ digital wallet providers, which include trading and investment platforms such as Coinbase and Gemini.