Ohio Lawmaker Aims to Tighten Crypto Tax Regulations

Introduction to the Tax Gap Challenge

The world of cryptocurrency can feel like the Wild West, especially for those trying to navigate the rugged terrain of taxes. With Bitcoin fever gripping the nation and altcoins popping up like daisies, keeping track of who owes what in taxes has become a monumental task. Enter Senator Rob Portman of Ohio, ready to ride in on his legislative horse to help wrangle this financial scuffle.

Proposed Legislation: What’s Cooking?

During a recent appearance on CNBC’s Squawk Box, Senator Portman shared his ambitious plans to introduce new tax legislation aimed at closing the yawning tax gap that has emerged due to profit-hungry crypto investors dodging their responsibilities. Although he confessed that the legislation is still a work in progress, the bipartisan interest in this initiative is a glimmer of hope for tax enthusiasts and lawmakers alike.

The Tax Gap: A Trillion-Dollar Dilemma

As it stands, the Internal Revenue Service (IRS) has put the tax gap at a staggering trillion dollars. Portman argues that part of this mammoth gap is due to lax reporting and vague classifications surrounding cryptocurrency transactions. “Better information reporting on cryptocurrency is essential,” he insists. It seems both sides of the political aisle agree that putting in place clearer regulations can help fix this issue, even if it takes longer than anticipated.

IRS’s Take: Is Transparency the Key?

In a recent Senate Finance Committee hearing, IRS Commissioner Charles Rettig stated that implementing robust reporting rules would “absolutely” contribute to bridging the tax gap created by crypto. The introduction of a question on 2019 tax return forms, asking individuals if they had engaged with cryptocurrencies, was a move in the right direction. However, Rettig acknowledged that some crypto endeavors remain “not visible by design,” adding to the complexity. After all, if the IRS can’t track your transactions, how can they tax them?

Historical Context: Taxes and Crypto Transactions

Looking back, from 2011 to 2013, a whopping 83.6% of taxes were paid voluntarily and on time. However, this still resulted in an average annual loss of about $400 billion. Clearly, if you’re feeling lucky and thinking of skirting the IRS, it might be best to reconsider—after all, luck runs out faster than Bitcoin prices in a downturn.

Other Legislative Efforts: A Continued Push

Efforts to impose clearer standards for crypto tax reporting have been ongoing. Last year, the Virtual Currency Tax Fairness Act of 2020 sought to define transactions in a way that would exempt certain personal transactions involving cryptocurrencies. Despite the slow crawl of legislation, it remains clear that Washington is catching on to the crypto craze—and they want to make sure they’re not left out when it comes to their share of the spoils.

The Bottom Line: What’s Next for Crypto Taxation?

With Senator Portman at the forefront, it looks like the U.S. might soon see more defined rules around cryptocurrency earnings and taxation. Will these efforts succeed in closing the multi-billion-dollar tax gap? Only time will tell. Just remember, when it comes to taxes and crypto, the only thing that might be worse than meeting your tax obligations is not meeting them at all.