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Crypto investors only pay half the taxes

Overall, cryptocurrency investors are failing to pay the IRS at least half of the taxes they owe on their virtual currency transactions, according to a new analysis by Barclays.

A research note from Barclays executive Joseph Abate paints a picture of a burgeoning new industry that the Internal Revenue Service is finding difficult to account for.

The US Internal Revenue Service has not recently published its own estimates of the difference between taxes owed and taxes it says it has paid. Abate, a veteran money markets and Treasury Department funding analyst, extrapolated from a 2017 IRS calculation to find that the current tax gap would be about $50 billion per year — about 10% of all unpaid taxes.

Abate’s estimate does not include recent decentralized finance, which includes mining, staking, or participation in liquidity pools.

Bottom line in the crypto sphere: “It’s difficult for the IRS to find out who owes taxes.” That’s because all counterparties are anonymous, even if visible on blockchains.

The crypto challenges are part of a broader and growing challenge. IRS Commissioner Chuck Rettig that the overall tax gap is significantly larger than previous agency studies have found. Rettig told the Senate Finance Committee last year that the shortfall — which includes crypto, capital gains, and all other charges — could be as high as $1 trillion per year, or multiples of what previous estimates suggested. He attributed the jump in part to crypto.

The IRS has already begun cracking down on tax evasion among crypto investors and will require brokers to report transactions worth at least $10,000 to the agency starting in 2023. The IRS has also increased enforcement activities, working with tax authorities in Australia, the UK, the Netherlands and Canada to investigate financial crimes.

The increased attention to taxing crypto transactions is part of an increased focus on regulating the industry. Lawmakers and regulators called for new rules again this week after a popular stablecoin lost its peg to the US dollar, putting investors and the market at large at risk.

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