Biden Administration Proposes New Rules for Taxing Cryptocurrency

 Posted on April 18, 2022 in Taxation Law

In recent years, virtual currencies have become a popular investment. Many people have been able to realize significant gains through buying, selling, and trading cryptocurrencies, and they have also used these currencies to complete multiple types of digital transactions. As the use of virtual currencies has continued to rise, the federal government has taken steps to ensure that assets and transactions are reported properly so that they can be taxed by the IRS. The way these currencies are treated may change in the future based on proposals from the administration of President Joe Biden.

Changes to Cryptocurrency Taxes Could Raise Billions in Tax Revenue

A budget proposal released by the Biden administration in March 2022 included several possible changes to how virtual currencies may be treated. These include:

• Cryptocurrency taxes may shift to using mark-to-market rules. Currently, virtual currencies are treated as property, and capital gains taxes are applied when cryptocurrencies are sold or traded. Under a mark-to-market system, increases in value of cryptocurrencies would be treated as income, and in some cases, owners would be required to pay income taxes to the IRS. However, virtual currencies would not be considered to be securities or commodities, and mark-to-market rules would only apply for currencies classified in a new third category of assets. The Treasury Department will determine which types of currencies are included in this category depending on whether they are actively traded, whether they are regularly bought and sold using currency issued by the United States or other countries, and whether reliable price quotes are available.

• New reporting rules may be put in place to ensure that foreign cryptocurrencies owned by U.S. taxpayers are reported correctly. If foreign digital assets are included among a taxpayer’s reportable assets, cryptocurrency owners will be required to report these assets if they own aggregate foreign assets worth $50,000 or more. Financial institutions may also be required to report foreign digital assets held by U.S. taxpayers, and cross-reporting agreements with institutions in different countries may help the IRS uncover offshore tax evasion. These reporting requirements will bring cryptocurrencies in line with the rules for other types of investment assets.

With these new rules, the Biden administration expects that the United States will be able to receive an additional $11 billion in tax revenue over the next 10 years. The budget proposal is also looking to increase the budget for the Department of Justice to combat the misuse of cryptocurrency, including in ransomware schemes. If the proposal is adopted, the new rules will go into effect on January 1, 2023.

Contact Our San Jose Tax Compliance Lawyer

Those who have invested in virtual currency will need to make sure they meet their tax reporting requirements. At John D. Teter Law Offices, we can help you understand your current requirements and advise you on how you may be affected by changes to reporting rules. We can also help you address any issues related to unreported assets, and we can help you determine the best steps to take to come into compliance with IRS requirements and minimize any penalties that may apply to you. Contact our San Jose, CA tax compliance attorney at 408-866-1810 to get the legal help you need.

Sources:

https://www.axios.com/biden-targets-crypto-wealth-for-11-billion-in-new-tax-revenue-4b49e3de-fdc7-4d46-aaef-7cd26d227617.html

https://www.coindesk.com/policy/2022/03/28/biden-budget-proposal-estimates-additional-11b-in-revenues-by-2032-by-updating-crypto-rules/

https://finance.yahoo.com/news/biden-budget-crypto-tax-reporting-162921465.htmlv