Last week, a Barclays report indicates that crypto traders may not be paying their full taxes to the Internal Revenue Service (IRS), and that the tax gap for crypto trading might be as high as $50 billion. Joseph Abate, a managing director at Barclays Bank, pointed out that the $50 billion estimate is conservative.
This figure was calculated by Barclays based on IRS data from 2017. The indicated tax gap is the difference between the amount of tax payable and the amount of tax received. The IRS calculated that the crypto tax gap accounted for 10% of the entire national shortfall at the time. The report claims that the difference has widened dramatically as crypto operations in DeFi, NFTs, and other areas have risen significantly.
The report reads:
“While all transactions may be visible on the blockchains, if all the counterparties are anonymous, it is difficult for the IRS to figure out who owes taxes.”
According to Austin Woodward, the CEO of TaxBit, a bitcoin accounting platform, the US IRS might start chasing crypto shortly .
Woodward claims that:
“The IRS has been leaning very hard, investing in both personnel and process and form amendments.”
To avoid tax avoidance, crypto traders must take tax reporting seriously. Tax reporting is not covered by crypto anonymity. The IRS has included questions concerning bitcoin and digital assets on its US Individual Income Tax Return form in the previous two years (Form 1040).
Those inquiries are intended to determine whether somebody has “receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency.”
According to Woodward, answering the question honestly is critical. Failure to do so may be considered perjury and a deliberate intent to dodge tax, resulting in IRS audits and hefty fines.
According to the financial experts, crypto traders should be honest about their crypto sales and acquisitions. Because the IRS conducts audits over a two-year period, an individual may still be responsible for unreported tax gains from the prior year.
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