Treasury Secretary Janet Yellen defended the controversial elements of the recently proposed American Families Plan Tax Compliance Agenda. The legislation would require banks and other financial services, including cryptocurrency asset exchanges and custodians, to report information to the Internal Revenue Service (IRS) on transactions or balances worth $600 or more. In a recent interview, Yellen called the new requirements “routine.”
Below is one of the controversial changes in the legislation:
The new reporting regime would build from the framework of the Form 1099-INT reports that taxpayers already receive from financial institutions when they earn more than $10 in interest from a bank, brokerage, or other financial institution. Financial institutions would simply report additional data on the financial accounts of these existing information returns. Specifically, the annual return would report gross inflows and outflows on all business and personal accounts from financial institutions, including bank, loan, and investment accounts but carve out exceptions for accounts below a low de minimis gross flow threshold.
Other accounts that are similarly situated to financial institution accounts would also be covered under this new reporting regime— for example, payment settlement entities would also be required to report gross receipts and gross purchases. The reporting regime would also cover foreign financial institutions and crypto-asset exchanges and custodians.
The exceptions apply to bank accounts with a total inflow and outflow of less than $600.
A section of the legislation titled “Challenges of Cash and Virtual Currencies” contains some information related to cryptocurrencies:
Still another significant concern is virtual currencies, which have grown to $2 trillion in market capitalization. Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion.
This is why the President’s proposal includes additional resources for the IRS to address the growth of crypto assets. Despite constituting a relatively small portion of business income today, cryptocurrency transactions are likely to rise in importance in the next decade, especially in the presence of a broad-based financial account reporting regime. 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. Although cryptocurrency is a small share of current business transactions, such comprehensive reporting is necessary to minimize the incentives and opportunity to shift income out of the new information reporting regime.
During a CNBC interview, Yellen said, “So the collection of information is routine,” seemingly conflating the reporting of interest earned and complete financial surveillance. “It’s just a few pieces of information about individual bank accounts, nothing at the transaction level that would violate privacy,” the secretary said.
Last week, during a hearing, Yellen claimed the threshold was $600 because “it is important to have comprehensive information so that individuals can’t game the system and have multiple accounts.”
Yellen also backed President Biden’s nominee for Office of the Comptroller of the Currency. The nominee, Saule Omarova, is more openly opposed to the use of cryptocurrency than Yellen. She has called for increased scrutiny and government regulations for cryptocurrency transactions.
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The American Families Plan Tax Compliance Agenda (pdf)