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21 May 2021
3 min read

US Treasury Calls for a Crypto Tax, Fed Explores a Digital Dollar

US Treasury Calls for a Crypto Tax, Fed Explores a Digital Dollar

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Key Takeaways

  • New US regulations to require transfers of over $10K in crypto to be reported to the IRS
  • Federal Reserve considering whether to move forward with the creation of a digital dollar

The US Treasury Department is calling for stricter cryptocurrency rules that would require businesses who own digital assets to report to the IRS transfers of over $10,000. According to a new report from the US Treasury Department, called The American Families Plan Tax Compliance Agenda, the Biden administration aims to oversee the largely unregulated cryptocurrency industry by putting in place rules that would make it easier for the government to keep an eye on the crypto space.

The report mentions that cryptocurrencies present a “significant detection problem” and are used to facilitate “illegal activity broadly including tax evasion.” The step comes as part of Joe Biden’s enforcement plan to ensure a more powerful and effective Internal Revenue Service (IRS).

“This is why the President’s proposal includes additional resources for the IRS to address the growth of crypto assets,” the tax compliance agenda says. “Within the context of the new financial account reporting regime, cryptocurrencies and crypto-assets exchange accounts and payment service accounts that accept cryptocurrencies would be covered. Further, as with cash transactions, businesses that receive crypto assets with a fair market value of more than $10,000 would also be reported on.”

The Crackdown on Tax Evasion

The Treasury Department has been working on implementing a stricter regulatory framework in an effort to crackdown on tax evasion and promote Joe Biden’s new economic plan that focuses on infrastructure, child care, and education. As a significant part of the initiative to push President Biden’s $4tn economic plan, the White House administration is seeking to raise taxes to pay for the big-ticket spending. The Treasury Department estimated that for 2019, the difference between taxes owed and taxes paid totaled nearly $600bn.

Meanwhile, on Thursday, the Federal Reserve said it plans to publish a discussion paper on the benefits and risks of issuing a government-backed, centralized US digital currency. The US central bank began exploring the idea of a digital dollar soon after central banks around the world started experimenting with the new form of money.

“The paper represents the beginning of what will be a thoughtful and deliberative process,” Fed Chairman Jerome Powell said in a video message released yesterday. He clarified that the Federal Reserve has not yet confirmed it will start working on developing a central bank digital currency (CBDC), rather, it will first seek public comment on the matter.

“The design of a CBDC would raise important monetary policy, financial stability, consumer protection, legal, and privacy considerations and will require careful thought and analysis—including input from the public and elected officials,” Mr. Powell said. “However, given the dollar’s important role globally, it is essential that the Federal Reserve remains fully engaged in CBDC research and policy development.”

Bitcoin, on Friday, remains essentially flat after it suffered a 30% drop on Wednesday and then recovered some of the losses. The biggest crypto asset is now trading below the $40,000 threshold or 0.5% lower on the day.

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