As central banks explore digital currencies, governments are rallying for increased oversight of mercurial crypto assets. A major part of the regulatory quagmire over digital money concerns taxes. This year, the IRS has been strengthening its ability to track tax payers who own cryptocurrencies by probing digital currency exchanges and threatening to seize the assets of tax evaders. In the latest sign of a looming regulatory crack down on crypto, the Treasury Department has said it will require any transfer worth $10,000 or more to be reported to the IRS.
The proposal forms part of the Biden administration's overarching tax compliance plan. According to the Treasury, the gap between taxes paid and owed totaled nearly $600 billion in 2019 and could balloon to $7 trillion if left unaddressed. Echoing concerns raised by the Department of Justice, the Treasury warned that cryptocurrency poses "a significant detection problem by facilitating illegal activity" including tax evasion.
Officials aim to bolster the IRS through an $80 billion investment injection over the next decade. The plan includes the addition of 5,000 new enforcement jobs and a complete overhaul of the agency's "outdated" IT systems.
Following a period of immense growth — which saw entrepreneurs and institutional investors embrace a range of digital coins as a hedge against inflation — cryptocurrency has sprouted to a market cap of about $2 trillion, according to Reuters. That makes it more valuable than a range of Big Tech companies including Facebook, Amazon and Google parent Alphabet.
But, the threat of regulation has played havoc with crypto prices in recent weeks. On Wednesday, Bitcoin plummeted 30 percent at one stage after China banned banks and payment firms from providing services for cryptocurrency transactions. The country has prohibited crypto trading since 2019 over fears that it was being used for money laundering. The resulting jitters prompted a broad sell-off of cryptocurrencies and even caused an outage at digital currency exchange Coinbase.
Adding to the volatility, Tesla recently suspended Bitcoin payments for its cars, citing the environmental impact of crypto mining. However, the company ruled out selling any of its Bitcoin holdings.
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