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28th of March. The flowers are blooming, Chris Rock's phone is buzzing like a bee, and federal agencies are eager to be fertilized with money. However, they must first obtain funds in the form of tax revenue.
President Joe Biden of the United States today filed his budget proposal for the fiscal year 2023, along with revenue explanations from the US Treasury Department. According to the administration, by "moderniz[ing] standards" to apply specific financial accounting and reporting methods to digital assets, the US can collect around $11 billion in income over ten years—and nearly $5 billion next year alone.
The Biden Administration estimates that adopting mark-to-market standards to “actively traded” cryptocurrencies will generate $6.6 billion in revenue between 2023 and 2032. Mark to market is a method of valuing assets that takes current market conditions into consideration, as opposed to utilizing the asset’s purchase price, which may be higher or lower than its fair market value. In a nutshell, it’s a method of taxing unrealized profits, which implies the taxpayer is responsible for the difference between $3,000 and $4,000 in ETH, even if she doesn’t sell.
Second, Uncle Sam wants to raise revenue by requiring U.S. people to reveal any offshore account holdings worth more than $50,000.
“The global nature of the digital asset market offers opportunities for U.S. taxpayers to conceal assets and taxable income by using offshore digital asset exchanges and wallet providers,” says the Treasury. It estimates that tightening this reporting requirement will net it $2.2 billion over the next decade.
Finally, the government wants banks and financial institutions in the United States to exchange information with the Internal Revenue Service regarding the value of non-residents’ and foreign owners’ holdings in certain business entities.
According to Treasury, this affects nationals and residents who “try to dodge U.S. tax reporting by forming businesses through which they can act.”
“To combat the potential for digital assets to be used for tax evasion, third party information reporting is critical to help identify taxpayers and bolster voluntary tax compliance.” The administration estimates that implementing this step will generate $2 billion in additional income over the next ten years.
There’s one more modification the government wants to make, albeit it’s not saying that it will increase revenue. It believes that crypto loans should be governed by the same laws as other lending markets, where loan transfers of securities are normally free of gain or loss. Customers have been drawn to crypto lending products because they pay substantially greater yields than banks’ conventional interest rates, despite the fact that this practice has been criticized by federal and state securities regulators.
The budget is currently only a proposal for changes that will take effect on January 1, 2023. Congress and the administration will work out the details over the next six months or so.
