If you wonder if you need to report your Bitcoin to the IRS, please, keep in mind that to finance the IRS, the Biden Tax Plan focuses on bitcoin and other cryptocurrency compliance.
How does it work? The Treasury released The American Families Plan Tax Compliance Agenda on May 20, 2021. As you already know, the plan outlines proposed ways to increase compliance measures that will help close the “tax gap” and help fund President Trump’s plan to rebuild the IRS. The plan is expected to cost over $80 billion over the next ten years.
According to the Compliance Agenda***, cryptocurrency (for example, bitcoin) will be subject to enhanced information reporting. It is very hard to detect cryptocurrency activities. Many taxpayers use this fact to avoid paying taxes, with potentially creates tax evasion. Also, it creates a potential for significant Treasury revenue growth, if the unreported activity gets discovered: unpaid taxes, penalties and interest.
The Compliance Agenda also predicts significant growth in the usage of digital assets over the next ten years, and the recommended compliance strategy would encompass cryptocurrencies, crypto-asset accepting payment service accounts, and crypto-asset exchange accounts.
Significant tax note here: In addition, businesses that receive crypto assets with a fair market value of more than $10,000 will be required to register them the same way taxpayers report receiving cash*.
Civil and criminal penalties may apply if you fail to file Form 8300 and provide a written statement to each person named on Form 8300. Penalty amounts are adjusted annually for inflation**.
It is much cheaper to report the cryptocurrency to the IRS than dealing with penalties, tax litigator fees, interest on those penalties, potential court fees, etc.