Note: This article was originally published on Politico Pro. Subscribers can view it here.
REVENUE LOST, REVENUE GAINED: The amount of realized capital gains stemming from Bitcoin in the U.S. adds up to about $30 billion a year, the tax tech firm IVIX found in a new report.
That’s also a conservative estimate, IVIX says.
The firm got to that figure by crunching globally available blockchain data, Bitcoin transaction volumes and other cryptocurrency benchmarks, then extrapolating the American-based share of the Bitcoin gains. Around $30 billion in realized capital gains could lead to about $5 billion-plus in revenues for the Treasury, assuming around an 18 percent effective rate on capital gains. But IVIX acknowledges that gaps in cryptocurrency reporting likely mean the tax collections for those Bitcoin gains is lower.
About that: The report also found that the new cryptocurrency reporting requirements that are slated to go into effect next year, which Congress passed as part of the 2021 bipartisan infrastructure law, would be helpful.
Don Fort, IVIX’s chief business officer, told Morning Tax that the new tax form the IRS is finalizing for cryptocurrency would open up a range of new avenues for the agency as it seeks to boost compliance in an area not exactly known for it.
“The more information that you have at your fingertips, the better,” said Fort, who came to IVIX after leading the IRS’s criminal investigations division. “If you have noinformation reporting, the level of non-compliance — the potential is just enormous.”
But the IVIX report also notes that there will still be some blind spots for the new cryptocurrency reporting requirements, particularly in the unregulated exchanges not linked to the American banking system. The firm recommends a range of other policy options that it says would help identify crypto-related gains when they eventually do make it back into the U.S. banking system or to other businesses regulated by the government.
Those recommendations include requiring money service businesses — basically an outfit that offers check cashing, currency exchange or money orders — to report when customers have a crypto wallet, and to essentially assume that an entire sale of a crypto asset is taxable unless the holder can prove otherwise.
Fort acknowledged that the crypto industry and other sectors would almost certainly resist those ideas, particularly considering how much virtual currency companies have pushed back on the new reporting requirements enacted by Congress. For instance, money service businesses would likely absorb more costs with further crypto reporting requirements, Fort noted.
As for the other recommendation: “The basic premise is that if you cannot provide the sufficient documentation for the income or deduction on your tax return, it’s going to be disallowed,” Fort said. “It’s the same concept.”
IVIX note: Readers may click here to download the IVIX report referenced in this article, "Overview of Potential Tax Revenue in the US Crypto Market - 2024 Update."