The United States, a country where approximately 40 percent of adults are believed to hold crypto assets, is bracing itself for a surge in tax evasion cases related to cryptocurrencies. The Internal Revenue Service (IRS) in the US is already gearing up to address these cases, as disclosed by Guy Ficco, the chief investigating officer of the agency. Speaking at the Chainalysis Links event in New York, Ficco highlighted the growing number of ‘pure crypto tax crimes’ that the IRS is encountering, which are distinct from instances of fraud, money laundering, and scams.
Individuals in the US are subject to taxes ranging from zero percent to 20 percent on long-term capital gains, while short-term capital gains can be taxed at rates of up to 37 percent, depending on the profits accrued. Those who falsify information about their crypto profits when filing taxes can face charges under the Title 26 tax code. The IRS is actively working to identify and crack down on individuals engaged in such activities. Ficco emphasized the agency’s efforts to detect cases where individuals fail to report income generated from crypto sales or attempt to conceal the actual basis in crypto assets.
As the US prepares to combat crypto tax evasion, alarming reports of international tax evasion cases emerged in 2023 from Divly, a tech research firm based in Sweden. According to Divly’s findings, a mere 0.53 percent of global crypto holders paid taxes on their crypto earnings in 2022. The report highlighted disparities in tax compliance across different countries, with the Philippines having the lowest percentage of crypto taxpayers at 0.03 percent, and India ranking third from the bottom with only 0.07 percent of crypto holders fulfilling their tax obligations.
In India, where all crypto profits are taxed at a rate of 30 percent, industry stakeholders are incorporating taxation services into their platforms to facilitate users in calculating and remitting taxes to the government. The Indian Web3 community believes that demonstrating adherence to government regulations and ensuring consistency in tax compliance could lead to greater responsiveness from authorities and pave the way for stronger support for the sector’s growth. Last year, Taxnodes, a crypto taxation firm, made headlines by announcing that individuals paying their crypto taxes through its platform would receive complimentary NFTs as a token of appreciation.
Recognizing the gravity of the situation, the IRS in the US has forged partnerships with various law enforcement divisions to enhance the identification of criminal activities. Additionally, the agency has teamed up with Chainalysis, a blockchain analysis firm, to explore potential vulnerabilities in Web3 protocols that cybercriminals could exploit. By leveraging the expertise of specialized firms like Chainalysis, the IRS aims to stay ahead of tax evaders and address loopholes in the system effectively.
The global landscape of crypto taxation presents significant challenges, with tax evasion cases surfacing in various jurisdictions. As countries grapple with the complexities of regulating cryptocurrencies and ensuring tax compliance, collaborative efforts between government agencies, law enforcement bodies, and industry experts become crucial to combating illicit activities in the crypto space. Moving forward, enhancing transparency, promoting education on tax obligations, and implementing robust enforcement mechanisms will be key in addressing the rising trend of crypto tax evasion on a global scale.
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