The US, where estimates suggest that 40 percent of adults currently hold crypto assets, is bracing itself for a surge in tax evasion cases related to cryptocurrencies. Guy Ficco, the chief investigating officer of the IRS in the US, revealed this information during the Chainalysis Links event in New York. Ficco highlighted that the agency has been witnessing a rise in the number of ‘pure crypto tax crimes’ separate from fraud, money laundering, and scams. The US imposes taxes ranging from zero percent to 20 percent on long-term capital gains, with entities making up to $44,626 in profits from crypto activities in 2023 being exempt from long-term Capital Gains Tax.
Short-term capital gains, on the other hand, are subject to taxation of up to 37 percent based on the profits earned in the US. US nationals who intentionally misrepresent their crypto profits when filing taxes can face charges under the Title 26 tax code. The IRS is actively working to identify and prosecute individuals engaging in such activities. Ficco emphasized the need to address the issue, stating that cases of unreported income generated from crypto sales or concealing the true basis in crypto have been on the rise. The agency is anticipating more Title 26 crypto cases in the coming years.
To tackle the expected increase in crypto tax evasion cases, the IRS is establishing partnerships with various law enforcement divisions to enhance the identification of criminal activities. Additionally, the IRS has joined forces with Chainalysis, a blockchain analysis firm, to gain insights into potential vulnerabilities in Web3 protocols that cybercriminals could exploit. By leveraging these collaborations, the US IRS aims to strengthen its efforts in combating tax evasion within the crypto space.
While the US is gearing up to confront crypto tax evaders domestically, alarming statistics on international tax evasion cases have also emerged. According to Divly, a tech research firm based in Sweden, only 0.53 percent of global crypto holders paid taxes on their crypto earnings in 2022. The report revealed that countries like the Philippines and India had significantly low percentages of crypto taxpayers, with India taxing all crypto profits at 30 percent. In response, crypto platforms in India are integrating taxation services to assist users in calculating and paying their dues to the government.
The Indian Web3 community recognizes the importance of compliance with government regulations to garner support for the sector’s growth. By demonstrating adherence to tax laws and regulations, industry players believe that authorities may become more responsive to their needs and provide enhanced support for the development of the crypto ecosystem. Notably, Taxnodes, a crypto taxation firm, previously announced its initiative to reward individuals who pay their crypto taxes through its platform with complimentary NFTs, incentivizing tax compliance among crypto users.
The rising trend of crypto tax evasion cases both in the US and globally underscores the urgent need for regulatory oversight and enforcement within the cryptocurrency space. As authorities and blockchain analysis firms intensify their efforts to combat tax evasion, collaboration between industry stakeholders and regulatory bodies will be crucial in ensuring transparency and compliance in the evolving landscape of digital assets.
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