The Biden administration’s recently published “Green Book” included guidance on proposed US policy impacting cryptocurrency investors. Concurrently, the US Internal Revenue Service has been increasing its focus on cryptocurrency investors, including by adding a cryptocurrency question to the front page of Form 1040 this tax filing season. Charles Kolstad, international tax partner in Withers’ Los Angeles office and member of the firm’s cryptocurrency practice group, sat down with Bloomberg Law, Fortune and Accounting Today to discuss these recent developments and the impact on US and foreign cryptocurrency investors.
“The Biden administration has proposed requiring the collection of data on foreign cryptocurrency investors active in the US, aiming to bolster international cooperation to help in a broader crackdown on tax evasion,” a Bloomberg News article begins.
Charles, who frequently advises clients on tax issues related to crypto assets and blockchain technology, comments: “The Green Book proposal would be a continuation of information exchanges the US already conducts with foreign governments to uncover US citizens hiding assets offshore in undisclosed foreign bank accounts.”
The provision of information on foreign accounts to the IRS could not only help curb tax evasion but also strengthen cyber security, according to the article. The Biden administration is hoping the Green Book proposals will go into effect in 2023, though this specific proposal will require congressional legislation to move forward.
Additionally, there has been new coronavirus-related legislation that has had an impact on the 2020 tax season, creating one unlike any other. Among these various legislations and changes includes the cryptocurrency question that has been moved to the front page of Form 1040.
Charles, who notes that more people are investing in cryptocurrencies than ever before, comments that this change will cause a problem for many of these taxpayers: “The IRS is very focused on getting information about cryptocurrency investors, as their view is that there are a large number of such investors who are not complying with the current tax rules. The IRS has successfully subpoenaed several cryptocurrency exchanges such as Coinbase and Kraken to get information on clients with more than $20,000 in activity.”
Charles also acknowledges that the “IRS guidance does not address many of the tax issues that arise, such as whether the mark-to-market provisions of Section 475 apply to traders of cryptocurrencies, or whether non-fungible tokens — NFTs — are collectibles subject to the higher 28% capital gains tax rate.”
Despite this, it is essential that taxpayers answer the cryptocurrency investment question truthfully on Form 1040. Charles reminds readers that the “tax return is signed under penalties of perjury, so taxpayers need to be very careful to answer that question correctly” or risk heavy penalties imposed by the IRS.
To view the full articles, go to ‘Biden Targets Crypto Tax Evaders in Global Data-Sharing Pitch published by Bloomberg Law and ‘Biden proposes monitoring foreign crypto investors in the U.S. as part of global push against tax evasion published by Fortune on June 2, 2021. See also ‘Tax Season: A Learning Experience for All Concerned published by Accounting Today on June 24, 2021.
To read more from our attorneys on Biden’s tax policy proposal (Green Book), please visit, ‘What US and international taxpayers need to know about Biden’s tax policy proposal (Green Book)’.