The prevalence of cryptocurrency holdings among adults in the US is at an all-time high, with an estimated 40 percent of adults currently holding crypto assets. This surge in crypto ownership has also paved the way for an expected rise in tax evasion cases. The US’ Internal Revenue Service (IRS) is already gearing up to tackle these cases, as disclosed by Guy Ficco, the chief investigating officer of the IRS.
According to Ficco, the IRS has been witnessing a rise in the number of ‘pure crypto tax crimes’ that are distinct from fraud, money laundering, and scams. These tax crimes involve individuals deliberately evading taxes on their cryptocurrency profits. In the US, taxes on long-term capital gains range from zero percent to 20 percent, depending on the amount of profits earned. However, short-term capital gains can be taxed by up to 37 percent based on the profits accumulated.
US nationals who knowingly falsify information about their crypto profits when filing taxes can be charged under the Title 26 tax code. The IRS is currently focusing on identifying and prosecuting individuals who engage in such tax evasion practices. Ficco mentioned in an interview with CNBC that the IRS expects to see an increase in Title 26 crypto cases in the coming year.
To combat the anticipated rise in crypto tax evasion cases, the IRS has been forging partnerships with various law enforcement divisions to enhance the criminal identification process. Additionally, the IRS has teamed up with Chainalysis, a blockchain analysis firm, to understand potential loopholes in Web3 protocols that cybercriminals could exploit. By working with experts in the field, the IRS aims to stay ahead of tax evaders and protect the integrity of the tax system.
While the US is preparing to address domestic crypto tax evasion cases, international reports have shed light on the global landscape of tax compliance within the cryptocurrency space. According to a report by Divly, only 0.53 percent of global crypto holders paid taxes on their crypto incomes in 2022. Countries like the Philippines and India have reported alarmingly low rates of crypto tax compliance, with only 0.03 percent and 0.07 percent of crypto holders paying their taxes, respectively.
In India, where crypto profits are taxed at a rate of 30 percent, crypto players are integrating taxation services into their platforms to facilitate tax compliance among users. By demonstrating discipline and consistency in following government regulations, the Indian Web3 community hopes to garner increased support from authorities for the growth of the sector. Initiatives like offering complimentary NFTs to individuals who pay their crypto taxes through platforms like Taxnodes demonstrate a proactive approach to promoting tax compliance within the crypto industry.
The rise of crypto tax evasion cases poses a significant challenge for tax authorities around the world. By leveraging technological tools, forging partnerships with experts, and fostering a culture of tax compliance within the crypto community, governments can work towards mitigating the risks associated with tax evasion in the cryptocurrency space. It is crucial for individuals and businesses alike to uphold ethical and legal standards when engaging in crypto transactions to ensure the sustainability and legitimacy of the industry.
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