Allyson Versprille: IRS Giving 'Relief' to Crypto Tax Cheats

Officials at the Treasury Department and Internal Revenue Service are reportedly set to delay a federal requirement for cryptocurrency exchanges and brokers to begin surveilling their customers’ activity.

“The Treasury Department and the Internal Revenue Service are likely to push off a January date for the firms to begin tracking data,” Bloomberg News’ Allyson Versprille wrote in a morning report. The requirement was slated to go into effect on Jan. 1, 2023 for the 2024 tax year. Sources did not say how long the delay might extend.

The law was passed as an unrelated provision added to a $550 billion infrastructure package that President Joe Biden signed in November. The law required cryptocurrency exchanges and brokers to begin tabulating capital gains data related to their users’ trades, in addition to telling the feds about any self-hosted wallets with whom the users interacted. Critics of the law have noted that its definition of a “broker” is ambiguous, leaving a possibility open that wallet providers will be forced to surveil anyone using their products — or move their operations out of the United States.

The nonprofit Coin Center sued this month to block the section of the law related to wallets, noting “everyday senders and receivers of cryptocurrency would be forced” to collect “names, Social Security numbers, home addresses and other personal identifying information” from anyone with whom they interacted.

The IRS delay may have been motivated partially by the precipitous decline of cryptocurrency prices since November, when the industry’s market capitalization reached a peak of roughly $3.1 trillion. Democrats on the Joint Committee on Taxation — led by Rep. Richard Neal (D-Mass.) and Sen. Ron Wyden (D-Ore.) — promised at the time that the provision would raise $28 billion over a 10-year period. The market’s value stood at about $940 billion as of Wednesday — a drawdown of roughly 70 percent — making it likely the provision will result in negative revenue for the current tax year.

Bloomberg’s story offered a different takeaway, with the headline, “Crypto Tax Cheats Likely to Get Relief as US Crackdown Hits Snag.”

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“The US government’s bid to collect billions of dollars in taxes is hitting a snag,” Versprille wrote, while claiming “crypto tax evasion” was “a major issue for Washington policymakers even amid the recent downturn.”

She added that the law “would not only help the IRS catch tax cheats but also make filing easier for those who want to pay their bills” before quoting former IRS chief counsel Michael Desmond, who said it “could be very helpful just to standardize the reporting and put it in a way that makes it easier to digest and put on a tax return.”

Officials at the IRS and Treasury Department declined to comment.