The core fundamental of the crypto world can be expressed in two words — decentralized and uncontrolled. However, the US government isn’t very concerned with cryptocurrency’s underlying principles.
This is due to the recent growth in interest among American lawmakers and governmental bodies in the regulation of cryptocurrencies. Organizations like Financial Crimes Enforcement Network (FinCEN), U.S. Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and others focus on strengthening the security of the crypto world.
In this article, we have summarized some of the major updates from popular organizations on the crypto tax audit, anti-money laundering (AML) as well as other security regulations.
Financial Crimes Enforcement Network, U.S. Treasury
In 2013, FinCEN (Financial Crimes Enforcement Network) was among the first ones in establishing its jurisdictional flag in the early days of cryptocurrency.
They stated that “administrators or exchangers” of virtual currency qualified as money services organizations as per the FinCEN rules and Bank Secrecy Act (BSA).
Money service companies must also create, execute, and manage an AML compliance program in addition to registering with FinCEN. Congress has stated that companies that exchange or transport virtual currencies qualify as regulated enterprises under the Anti-Money Laundering Act of 2020.
The BSA must also be followed by tumbler or mixer service providers, according to FinCEN guidelines published in 2019.
Decentralized Finance is subject to AML regulations, according to FinCEN. Additionally, FinCEN has made it plain that Decentralized Finance is subject to AML requirements.
U.S. Securities and Exchange Commission
During the Biden term, the SEC’s attack on the cryptocurrency sector has substantially grown. As of now, the SEC has mostly focused on whether or not cryptocurrency should be regulated in accordance with the U.S. Securities Exchange Act and other relevant regulations as security. In fact, the SEC has concentrated its crypto enforcement resources largely in relation to claims of unregistered securities transactions.
Commodity Futures Trading Commission
Organizations that trade swaps related to cryptocurrencies are under the authority of the CFTC since it has adopted the viewpoint that cryptocurrencies are equivalent to commodities. The CFTC’s authority over digital assets would also be strengthened by a recent proposal, however, the senators recently stated that the proposal will probably be postponed.
State Regulators
One of the top regulators of cryptocurrencies is the New York State Department of Financial Services (DFS), and the state’s regulatory framework is still the strongest of all the states.
When it comes to cryptocurrency regulation, there is rarely consistency throughout the states. Even though some states have claimed regulatory authority over enterprises using virtual currencies, many others have not.
For instance, Florida lawmakers recently enacted a bill that nullified an existing Florida statute meant to prevent money laundering in the cryptocurrency business, in contrast to New York, which has seemed optimistic about crypto enforcement. Wyoming has enacted legislation aimed at establishing itself as a bitcoin-friendly state while also attempting to clarify the rules governing cryptocurrency firms.
The Bottom Line
In the future, there will probably be more regulation of cryptocurrencies and crypto tax audits. Some still need to be answered. What threats are present by nature? What are the safeguards that could lessen such risks? Which risks are acceptable? Only future regulations will address these questions.
Although there are many safe harbors and regulatory grey areas, authorities continue to impose supervision over this expanding business. Federal and state authorities may target regulated cryptocurrency businesses that don’t abide by basic AML compliance procedures including doing KYC on new clients, keeping an eye on transactions, and looking into questionable transactions.
FAQs
- Will I get audited if I don’t report crypto?
Although selling or trading cryptocurrencies won’t result in a tax audit, you still need to declare your gains and losses in order to complete a tax return that is accurate.
- Can crypto be audited?
IRS crypto tax audits of cryptocurrency tax returns are increasing.
Making sure all cryptocurrencies and cryptocurrency transactions have been correctly declared for income tax and reporting reasons is the best strategy to withstand an IRS cryptocurrency audit. If you own cryptocurrencies, you should proactively be ready for an IRS audit.
- Does the IRS investigate crypto?
The IRS has increased its oversight of and enforcement of cryptocurrency laws over time. Virtual money should be recognized as an asset for federal tax reasons, and capital gains tax laws apply, according to IRS advice that has been in place since 2014.
