The U.S. Internal Revenue Service (IRS) is set to release new guidance regarding cryptocurrencies. Japanese tax authorities have been poring through domestic exchange data, looking for tax cheats. Australia’s own chief taxation agency is running a dozen investigations into global tax avoidance ploys involving crypto.
These new developments highlight what’s increasingly obvious: top cryptocurrencies are a growing concern for tax departments the world over, as they allow commerce beyond traditional, and already regulatory captured, financial systems.
Such concerns contributed in part to the creation of the international J5 coalition, which launched last summer with the IRS at its helm. Tax officials from Australia, Canada, the Netherlands, and the United Kingdom joined America’s top tax watchdog in forming a group to combat taxation avoidance via cybercrime and cryptocurrencies.
In the ensuing year, the J5’s efforts have solidified. News broke this week that, courtesy of increased data sharing among the coalition’s partners, the Australian Tax Office (ATO) were currently investigating 12 international and crypto-centric tax cheating schemes. Moreover, the ATO has said the wider J5 has 50 more prospective cases to investigate.
That office’s deputy commissioner, Will Day, suggested a major international financial institution was involved in at least one of the ATO’s investigations. He said many of the Australian subjects they had looked at seemed to be operating as middlemen:
“At no other time have criminals been at greater risk of being caught. In Australia, they are often intermediaries who are playing a role between the tax evader and an offshore entity.”
Beyond the J5, crypto tax avoiders in other major countries are also being as scrutinized as ever.
The Tokyo Regional Taxation Bureau Has the Receipts
Word also broke this week that specialists within Tokyo’s top tax authority had identified dozens of companies and people that had failed to report significant amounts of cryptocurrency gains in recent years.
Agents with the Tokyo Regional Taxation Bureau recently started combing through domestic cryptocurrency exchange data after asking select local companies to hand over pertinent records.
Upon analyzing this data, the Bureau’s specialists determined that some 30 enterprises and 50 traders had collectively failed to report more than $90 million USD worth of gains made up through the spring of 2019. Criminal cases may be imminent accordingly.
Within that context, Japan’s National Tax Agency (NTA) is working to tighten the rules around large-scale Japanese cryptocurrency traders. Part of the crackdown would apparently involve tracking these traders’ trades.
Notably, cryptocurrency profits in Japan can be taxed in excess of 50 percent — a steep toll, many would say. Conversely, stock gains in Japan are taxed at 20 percent.
Will the IRS Shake Up the U.S. Crypto Scene?
Days ago, IRS Commissioner Charles Rettig noted in a letter to congressional officials that his agency would be dispensing new guidance on cryptocurrency use for Americans.
“We have been considering these issues and intend to publish guidance addressing these and other issues soon,” Rettig wrote.
Currently, American regulators have competing views of cryptocurrencies. The IRS taxes crypto like physical property, the Commodities Futures Trading Commission approaches them like commodities, and the Securities and Exchange Commission sees most tokens as securities. In short, it’s an ambiguous regulatory thicket right now in the U.S.
As such, the IRS’s new guidances won’t be the best thing since sliced bread, but they should bring more clarity, which many American cryptoeconomy stakeholders say is desperately needed in the country.
Even still, the IRS is not the U.S. Congress, and therefore it can’t override or unify the CFTC’s and SEC’s own approaches to cryptocurrency. So while the agency can clarify its own purview, the IRS still can’t mitigate the overarching ambiguity American crypto users face. That’s a task instead for the House and the Senate.