One of the many questions raised by cryptocurrency is how to tax this new world of digital assets. It poses real tax evasion concerns.
Crypto was explicitly developed to allow people to transfer currency to one another directly, circumventing the oversight of financial institutions. The Internal Revenue Service relies on information shared by these financial institutions to ensure tax compliance — a system cryptocurrency defies. The crypto space has well-documented anarchist roots, and it has largely been averse to government regulation. Cryptocurrency and blockchain — complex and novel technologies — were not designed with tax returns in mind.
The IRS has made some things clear about crypto taxes. As of now, individual taxpayers must answer a question about whether they have participated in digital asset transactions. If I buy a token, it doubles in value and then I sell it, I must pay capital gains tax. Last month, the IRS issued a reminder that income from digital asset transactions has to be reported. And it recently released much-needed guidance on when NFTs, or non-fungible tokens, should be taxed as collectibles. Congress passed new crypto broker-dealer reporting requirements in 2021, and the Treasury Department is expected to release regulations on these requirements soon.
