The U.S. Internal Revenue Service and central tax authorities from the United Kingdom, Canada, Australia and the Netherlands have come together to minimize how much cryptocurrencies are being used commit crimes and evade taxes.
Together, the group of tax authorities have formed the Joint Chiefs of Global Tax Enforcement, also known as the J5.
For some in the cryptocurrency business the forming of the J5 represents a major step forward in recognizing digital currencies are far more than just a fad – and need to be taken seriously. That may be coming, but for this group the emphasis is all about how one of the principal ways many cryptocurrencies are being used is to hide potentially illegal financial transactions from local government authorities. Hiding the cash can make it close to impossible for local authorities even to know that a transaction is taking place, and enforce taxation requirements. More seriously, the lack of transaction transparency in cryptocurrency use makes it perfect for laundering money in criminal transactions.
In announcing the formation of the group, the Internal Revenue Service said that, “We will work together to investigate those who enable transnational tax crime and money laundering and those who benefit from it. We will also collaborate internationally to reduce the growing threat to tax administrations posed by cryptocurrencies and cybercrime and to make the most of data and technology.”
The ease with which cryptocurrencies can be used to hide both legally-acquired and criminally-laundered funds is a major focus for the J5. As Dan Fort, head of the IRS criminal investigation unit said about the new move, “We cannot continue to operate in the same ways we have in the past, siloing our information from the rest of the world while organized criminals and tax cheats manipulate the system and exploit vulnerabilities for their personal gain. The J5 aims to break down those walls, build upon individual best practices, and become an operational group that is forward-thinking and can pressurize the global criminal community in ways we could not achieve on our own.”
The IRS already considers assets like Ethereum and Bitcoin to be currencies. They are therefore subject to income tax laws just like any other currency. It also is on record that cryptocurrencies make tax avoidance far too easy at this time.
Beyond the tax avoidance crackdown, the Internal Revenue Service and the other authorities could become even more valuable by establishing uniform transparency compliance guidelines for cryptocurrencies globally. Governments themselves are too far behind in accepting that digital currencies are here to stay, and could use the assistance of such a group to help guide them in developing integrated legislation and technology systems to manage the growth of this booming fintech industry.