Warren, Sanders Urge Biden Officials to Crack Down on Crypto Tax Evaders

Cryptocurrency brokers are skipping out on at least half of their tax obligations, experts have estimated — and a group of senators is urging federal officials to crack down on what analysts say is an at least $50 billion tax gap caused by crypto tax evaders.

Four senators, led by Sen. Elizabeth Warren (D-Massachusetts), sent a letter on Tuesday to federal regulators urging them to swiftly implement rules that would close loopholes that allow for crypto trading to be rife with tax evasion.

The lawmakers pointed out that, even though the 2021 Infrastructure Investment and Jobs Act mandated new reporting requirements for crypto trading, the Treasury Department and Internal Revenue Service (IRS) have not yet created rules to implement them, despite a deadline set by Congress to do so by the end of this year. Experts say that this is an unusual delay for a tax regulation of this nature.

“If your agencies fail to implement the new crypto tax reporting rules by December 31, 2023 — the deadline established by Congress — you will risk losing an estimated $1.5 billion in tax revenue in 2024. This is an unacceptable outcome,” the lawmakers wrote, citing a report by Congress’s Joint Committee on Taxation that also found that failing to rein in the crypto tax gap could cost almost $28 billion over the next eight years.

“Given the chance, tax evaders and the crypto intermediaries willing to aid them will continue to game the system, exploit loopholes, and siphon off billions of dollars a year from the U.S. government. You must not give them that chance,” they continued.

The letter was signed by Senators Bob Casey (D-Pennsylvania), Richard Blumenthal (D-Connecticut), and Bernie Sanders (I-Vermont).

Barclays analysts estimated the $50 billion figure last year based on 2017 IRS data, and say that the actual number is likely even larger taking into account the increased activity in cryptocurrencies over recent years. That gap, analysts said, accounts for a full 10 percent of the national tax gap, or the money that is owed in taxes each year that isn’t paid. And, because of the anonymized nature of most cryptocurrency exchanges, it is even more difficult for the IRS to work out where taxes aren’t being paid.

As government watchdogs have pointed out, the longer officials wait to implement the rules, the more time large crypto traders have to avoid taxes.

The new rules, if implemented by the Treasury Department, would require third parties like Coinbase to report information about individuals’ crypto trades, including gains and losses, to the IRS. Experts have said that these rules could go far in ensuring that the IRS has the tools to close the crypto tax gap, including the resources for the IRS to go after large-scale tax avoiders.

President Joe Biden has expressed support for cracking down on crypto tax cheats, saying that crypto loopholes allow wealthy tax cheats yet another avenue to hide their revenues.

The regulations would put restraints on an industry replete with all forms of fraud and corruption. Warren has previously introduced legislation to implement restraints on money laundering, fraud and illegal weapons trading using the crypto ecosystem.