Report: Crypto traders potentially owe IRS around $50B in unpaid taxes
IRS is interested in crypto as it has added questions about cryptocurrency and digital assets to its US Individual Income Tax Return form (Form 1040).
A Barclays report has revealed that crypto investors might not be paying their full taxes to the Internal Revenue Service (IRS), saying that the tax gap for crypto traders could be up to $50 billion, CNBC reported.
The tax gap is the difference between tax owed and tax collected.
Barclays arrived at this calculation using data referenced by the IRS in 2017. The IRS estimated then that the crypto tax gap was 10% of the overall national gap.
According to the bank, the gap is much wider now, given that crypto activities in DeFi, NFTs, and others have grown significantly.
While all transactions may be visible on the blockchains, if all the counterparties are anonymous, it is difficult for the IRS to figure out who owes taxes.
Interestingly, Joseph Abate, a managing director at the bank, noted that the $50 billion estimates are on the low side.
IRS could start targeting crypto-traders
Austin Woodward, the CEO of a crypto accounting platform, said that the tax agency could start targeting crypto traders soon.
According to Woodward:
The IRS has been leaning very hard, investing in both personnel and process and form amendments.
Crypto traders have to take tax reporting seriously to avoid tax evasion. Crypto anonymity does not extend to tax reporting. In the last two years, the federal agency has added questions about cryptocurrency and digital assets to its US Individual Income Tax Return form (Form 1040).
Those questions are designed to know if anyone “receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency.”
Woodward said that it’s essential to answer the question honestly. Failure to do so could amount to perjury and willful intent to evade tax, resulting in audits and severe fines from the IRS.
The tax expert advised crypto traders to be honest about their crypto sales and purchases. Since the IRS audits over two years, a person can still be liable for unreported tax gains in the previous year.
Crypto tax issues are coming to fore
Authorities worldwide have become increasingly interested in how they can tax the crypto industry.
The Indian government is leading this charge as various reports have emerged on the number of tax policies the Asian country is looking to implement.
Already, the Modi-led government has imposed a 30% taxation on all crypto gains. It is also reportedly looking to add 28% Goods and Services Tax on cryptocurrencies.