On May 20, 2021, the US Department of the Treasury (Treasury Department) issued a Report on the American Families Plan’s Tax Compliance Agenda, which includes a proposal that would require taxpayers to report cryptocurrency transactions with a fair market value of $10,000 or more to the Internal Review Service (IRS), in accordance with the current tax reporting requirements for cash transactions. These reporting requirements would cover cryptocurrency and cryptoasset exchange accounts, as well as payment-service accounts that accept cryptocurrency.

The cryptocurrency tax reporting proposal included in the report is part of President Biden’s recent American Families Plan (AFP). The report notes that the IRS has already identified cryptocurrency transactions as an enforcement priority and recently included a virtual currency (VC) reporting question on the individual tax return, Form 1040. The report observes that VC, which have grown to $2 trillion in market capitalization, are a significant concern to the IRS.

The report also notes that cryptocurrency poses a significant detection problem for the IRS by facilitating tax evasion. An article quoted in the report observed that tax evaders, who traditionally executed their tax-evasion techniques through the use of offshore bank accounts in tax-heaven jurisdictions, may opt out of traditional tax havens in favor of cryptocurrencies.

The proposals made in the report seek to provide additional resources for the IRS to address the growth of cryptoassets. The report notes that cryptocurrency transactions constitute a relatively small portion of business income today. However, the report also observes that cryptocurrency transactions are likely to rise in importance in the next decade. The report also recognizes that comprehensive tax reporting on cryptocurrency is necessary to minimize the incentives and opportunity for taxpayers to shift income out of the current information reporting requirements.

For more on cryptocurrency and other digital assets, see Practical Law's Blockchain Toolkit.