The U.S. Treasury said the Biden administration’s proposal to strengthen tax compliance includes a requirement for transfers of at least US$10,000 of cryptocurrency to be reported to the Internal Revenue Service.

“As with cash transactions, businesses that receive cryptoassets with a fair-market value of more than US$10,000 would also be reported on,” the Treasury Department said in a report on tax-enforcement proposals released Thursday.

The Treasury said that comprehensive reporting is necessary “to minimize the incentives and opportunity to shift income out of the new information reporting regime.” It noted that cryptocurrency is a small share of current business transactions.

Bitcoin pared a daily advance after the IRS announcement, which shaved about US$3,000 from the token’s price. It was up 5.7 per cent, at US$40,530 as of 4:23 p.m. in New York. Cryptocurrency-linked stocks like Coinbase and MicroStrategy also gave up some of their gains immediately after the news, which had also prompted an outcry from some digital-coin enthusiasts on Twitter.

“There was some major overreaction,” said Kristin Smith, executive director of the Blockchain Association trade group. “For those of us that believe we should try to keep crypto on par with how cash is treated – this does just that.”

Cash transactions in excess of US$10,000 are already subject to IRS reporting requirements.

The IRS in 2020 added a line about cryptocurrency on the Form 1040, the individual tax return, in an effort to gain more visibility into virtual currency transactions.

Account reporting

President Joe Biden’s administration is also calling for banks to report on account flows to help boost tax-payment compliance.

“Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion,” the Treasury said.

The Treasury Department had already been working, prior to the start of the year, on proposed regulations to require brokers to report information to the IRS on their customers and the cryptocurrency sales they facilitate.