New IRS Rules May Shudder Crypto Industries, Says Coinbase

• The IRS released new tax gap projections for 2020 and 2021, estimating a tax gap of $688 trillion.
• While the tax gap shows a substantial increase from the previous tax years, the IRS proposed new rules.
• Coinbase commented that these rules would be incomprehensible and unduly burdensome.

According to the new tax gap projections for 2020 and 2021 released by the Internal Revenue Service (IRS), the “tax gap” in the United States has surpassed $600 billion in 2021. The IRS proposed new rules to confront the growing tax gap, pointing out that the findings couldn’t account for noncompliance in areas including digital assets and cryptocurrencies.

While calculating the tax gap, the vast difference between the “true” tax liability and the tax that is paid on time is revealed, covering three key areas, including non-filing of taxes, underreporting of taxes, and underpayment of taxes. According to reports from Forbes, the Statutory body estimated that the true tax liability for 2021 stands at $4.565 trillion, while the voluntarily paid tax is identified as $3.877 trillion, marking a gap of $688 billion. The current tax gap represents a staggering high compared to the tax years 2017-2019 and 2014-2016, when it stood at $550 billion and $496 billion, respectively.

Danny Werfel, the IRS Commissioner, commented on the substantial growth in the tax gap compared to the previous tax periods. According to the Commissioner, the increase in the rate highlights the necessity of critical “compliance efforts,” urging individuals to abide by IRS norms. Werfel added,

With the help of Inflation Reduction Act funding, we are adding focus and resources to areas of compliance concern, including high-income and high-wealth individuals, partnerships and corporations. These steps are urgent in many ways, including adding more fairness to the tax system, protecting those who pay their taxes, and working to combat the tax gap.

While the body highlighted the inconveniences with cryptocurrencies in tax regulations, tagging it as a part of a growing problem, Coinbase came forward commenting on the proposed rules as “an unprecedented, unchecked, and unlimited tracking on the daily lives of Americans”. Lawrence Zlatkin, Coinbase’s Vice President of Tax, cited, “These rules would establish an incomprehensible and unduly burdensome set of new reporting requirements that will degrade and displace the same taxpayer services the IRS is seeking to improve”.