The U.S. Treasury Department proposes to expand cryptocurrency tax reporting requirements

Imposing taxes on the rich and “arming” the tax authorities with $80 billion… the U.S. government will certainly not let go of the giant prey of crypto tax.

On May 28, the Biden administration released its 2022 budget proposal. In addition to the new budget, the U.S. Treasury Department also released an explanatory document on the government's revenue proposal.

In addition to its broader goals of closing tax loopholes and expanding the Internal Revenue Service (IRS), the Treasury Department has focused on combating crypto offshore tax evasion by issuing reporting requirements related to potential beneficial ownership to crypto asset brokers, including exchanges.

The actual beneficiary is a person who enjoys the ownership interest even though the property is owned by another name. Anyone who has actual control can be called an actual beneficiary, regardless of the formal legal relationship. For example, for the purpose of safety and convenience, publicly traded securities are usually registered in the name of a broker.

“The use of crypto assets to evade taxes is a rapidly growing problem,” the Treasury Department explained. “The global nature of the crypto markets provides U.S. taxpayers with opportunities to use offshore crypto exchanges and wallet providers to conceal assets and taxable income.”

The Treasury Department has proposed expanding the requirements for cryptocurrency brokers (including exchanges and custodial wallets) to report the beneficial owners of accounts and then include them in the automatic international reporting network. The proposed changes would allow the sharing of information between the United States and different jurisdictions within the cooperative network, thereby "expanding the scope of information reporting by brokers," and the proposal hopes to implement this mandatory requirement starting with 2023 tax returns.

The proposal is outlined below:

“The proposal would expand information reporting by cryptoasset brokers to include certain substantial beneficial owners of account entities. This would enable the United States to automatically share such information with appropriate partner jurisdictions for the purpose of exchanging information regarding U.S. taxpayers that engage in cryptoasset transactions outside the United States, either directly or through passive entities, pursuant to the global automatic information exchange framework. The proposal would require brokers (including entities such as U.S. cryptoasset exchanges and custodial wallet providers) to report cryptoassets held by such entities in brokerage accounts when reporting information related to such passive entities and their significant foreign owners. If adopted and combined with existing law, the proposal would require brokers to report gross receipts and such information as the Treasury may request regarding sales of cryptoassets to relevant customers and, for certain passive entities, information regarding their significant foreign owners.”

The 2022 budget also includes several other encryption reporting requirements.

Also for tax purposes, a proposal to introduce a “comprehensive financial account reporting” structure would require financial institutions to report user account data and detail different types of transfers above a $600 minimum.

This would include crypto asset exchanges and custodians, the document said.

“In addition, reporting requirements would apply where a taxpayer purchases crypto assets from one broker-dealer and then transfers them to another broker-dealer, and businesses that acquire crypto assets in transactions with a fair market value of more than $10,000 would be required to report such transactions,” the proposal reads.

The announcement comes about a week after the Treasury Department proposed that financial institutions and businesses would need to report cryptocurrency transfers of more than $10,000 to the IRS.

With overseas information sharing and lower account information reporting, the Biden administration may make crypto tax evasion impossible to hide.