Biden's Monetary Reporting Commitments for Cryptocurrency Exchanges – Expertise

Introduction – Includes Biden's Tax Compliance Agenda

Mandatory reporting by cryptocurrency exchanges about the account


In May 2021, the U.S. Treasury Department released a report

Description of the tax compliance initiatives that make up part of the United States

President Joe Biden's American Family Plan. The report

shows that the Biden administration certainly appreciates this

Cryptocurrency "poses a significant identification problem in that

Facilitating illegal activities, including tax evasion. "

In response, the President's Tax Compliance Agenda suggests the following:

new reporting system for third parties that the

“Information that financial institutions are already collecting in order to

shed light on taxpayers who generate income. specify incorrectly

opaque sources. "

The new reporting system will be based on current information

Returns, such as the Form 1099-INT reporting to Internal Revenue

Service (IRS) for any U.S. taxpayer who has received at least $ 10

Interest from a bank, broker, or other financial institution.

Under the new regime, financial institutions would "report"

additional data on the financial accounts of these existing ones

Returns of information. "Especially financial institutions,

including "foreign financial institutions and crypto assets"

Stock exchanges and custodians "must submit an annual declaration

Reporting "gross inflows and outflows for all stores and

personal accounts. including bank, loan and investment

Accounts. "In addition, the new financial account reporting

Regime becomes “cryptocurrencies”, “cryptoasset

Bill of exchange accounts "," Payment service accounts that accept

Cryptocurrencies "and" companies that receive

Cryptoassets with a fair market value of more than

$ 10,000. "

Although the Treasury Report does not go into details,

new financial reporting obligation will likely save the internal

Revenue Service goes to the lengths to locate this information

Cryptocurrency exchanges, one at a time – the approach the IRS takes

taken until today. On March 30, 2021, for example, the Interne

The tax authorities have received a court order demanding the San

The Francisco-based cryptocurrency exchange Kraken is set to surrender

Information about account holders with at least $ 20,000 in

Cryptocurrency transactions in the period from January 1, 2016,

by December 31, 2020. Two days later, the IRS received a similar one

Court order against the Boston-based cryptocurrency exchange,

Circle Internet Financial Inc. and its spinout company Poloniex

GMBH. And in 2017 the IRS hit the virtual currency exchange Coinbase,

with similar demand. A nationwide reporting requirement

obviously allows the Internal Revenue Service to identify

non-compliant cryptocurrency users without breaking their budget

Litigation against individual cryptocurrency exchanges.

How cryptocurrency information reporting in the United States

Could be trouble for Canadians with unreported cryptocurrency


Many Canadian cryptocurrency traders and investors hold accounts

with US-based cryptocurrency exchanges. Some cryptocurrency users

even shy away from Canadian cryptocurrency exchanges because

They consider Canadian exchanges to be less trustworthy – a stigma that

probably derived from the securities of the Ontario Securities Commission

discover the QuadrigaCX, which was once considered Canada's largest

Cryptocurrency exchange was nothing more than a Ponzi scheme.

Reporting of cryptocurrency information in the United States should

alert Canadian taxpayers using US-based cryptocurrency exchanges

and failed to make profits or holdings in cryptocurrencies on their

Canadian income tax returns. There are at least two reasons


First, Canada and the US have long committed to sharing taxpayers

Information for tax purposes. The CRA and the IRS

exchanges taxpayer information based on their

Participation in the Canadian-American tax treaty. Article XXVII of the

Treaty obliges the two countries to exchange all information that

may be relevant to a country's domestic tax enforcement

Laws. In addition, an international coalition was formed in the summer of 2018

the tax administrators – including the Canada Revenue Agency and the

United States Internal Revenue Service – promised yours

Resources and expose cryptocurrency users who evaded their tax

Obligations. The project aims to uncover and unreported income

Assets from investments in Bitcoin SV (BSV), Tether (USDT),

Monero (XMR), EOS, Binance Coin (BNB) and other cryptocurrencies,

like Facebook's upcoming Diem (formerly called

Libra). As a result, after extracting the taxpayer information from the

new cryptocurrency reporting system, the Internal

The Revenue Service will likely share its findings with the CRA,

This enables the Canadian tax authorities to investigate, audit and

prosecute Canadian cryptocurrency traders and investors who

tries to evade Canadian tax obligations by being US based

Cryptocurrency exchanges.

Second, when coverage of cryptocurrency information proves fruitful

the Canadian parliament will likely be responsible for collecting taxes in the US

Follow episode. In fact, the IRS has already inspired Canada

Revenue Agency to extract taxpayer records from the cryptocurrency

exchanges. Mirroring the lightning bolt of the IRS on the US-based

Cryptocurrency exchanges Circle Internet Financial, Poloniex,

Coinbase and Kraken, the CRA has received a federal court order

requires the Canadian cryptocurrency exchange Coinsquare

Identify all Canadian customers who had cryptocurrency accounts

Valued at $ 20,000 or more over the 2014-2020 period

or the cryptocurrency accounts with total deposits. held

$ 20,000 since the account was created. In the same way

Canadian tax administrators have been by the tactics of the

the Canadian government could take action on its US counterparts

which are similar to those of the Biden administration

Reporting requirement for cryptocurrencies. That should be worrying, of course

all Canadian taxpayers with unreported cryptocurrency income, no

only those using US-based cryptocurrency exchanges.

Getting started with an international tax reporting system for

Cryptocurrency exchanges

In fact, Canada has already introduced cryptocurrency reporting

Obligations to domestic and foreign cryptocurrency exchanges under

Canada's proceeds from crime (money laundering) and terrorists

Financing Act. On June 1, 2021, essential regulatory

Changes created new reporting requirements in virtual currency for

all reporting units in the context of the criminal offense proceedings (money

Money laundering) and Terrorist Financing Act.

This legislation had already called for various institutions

(including accountants, casinos, banks, insurance companies and

Money service companies) to report certain cash transactions and

electronic transfers to the financial transactions and reports

Analysis Center of Canada (FINTRAC). But from June 1st

all reporting bodies must now keep records and submit to FINTRAC

"Large Virtual Currency Transactions" reports.

In particular, each reporting company must have a "major"

Transaction data record for virtual currencies "for amounts received in

Cryptocurrency of C $ 10,000 or more in a single transaction or

over several virtual currency transactions with a total value of C $ 10,000

or more within 24 hours. These records must contain:

Identity of the person from whom the reporting company received the

Cryptocurrency, the date, the amount received, the type of

Cryptocurrency and the exchange rate. The reporting company must

take reasonable steps to determine if the transaction

created on behalf of a third party. If so, it is

Records must contain the identity of the third party.

In addition to keeping records of major cryptocurrencies

Transactions, the reporting authority must report these transactions

to FINTRAC by filing a Large Virtual Currency Transaction Report

(LVCTR). The reporting company must submit an LVCTR if (1) the company

receives a cryptocurrency of C $ 10,000 or more in a single transaction

or (2) the company receives cryptocurrency of C $ 10,000 or more

within a 24-hour window and the transaction was processed from, on

in the name or for the same person. The reporting body must submit

the Large Virtual Currency Transaction Report to FINTRAC within 5

Working days after receipt of the threshold amount.

In addition, the new rules for money laundering and terrorist financing apply

also require the exchange of cryptocurrencies, both foreign and foreign

Resident in Canada for record keeping and

FINTRAC reporting requirements. Under section 5 of the proceeds

Anti-Crime (Money Laundering) and Terrorist Financing Act, the

Record-keeping obligations and FINTRAC reporting obligations

extend to both:

  • "People and organizations that have a branch in

    Canada and who are in the business of (.) Commercial business

    virtual currencies "; and
  • “People and organizations that do not have a branch

    in Canada who do business with (trading in virtual

    Currencies) addressed to any person or entity in Canada, and

    who offer these services to their customers in Canada. "

This means that Canadian and non-Canadian cryptocurrencies

Exchanges are required to file a large virtual currency transaction report

to FINTRAC if the cryptocurrency exchange has an account

that a Canadian person has deposited (or economically owned)

of) fiat money or cryptocurrency of C $ 10,000 or more, either in a

single transaction or across multiple transactions within a period of

24 hours. In certain circumstances, the new rules also require

these cryptocurrency exchanges to check those of their customers

Identity by requesting a copy of a valid official photo ID,

through a credit check or (in the case of a legal person)

Obtaining the articles of association, articles of association,

Trust deed or other ascertaining document.

Although the CRA may require FINTRAC to pass on the information

it gets from Large Virtual Currency Transaction Reports that

Reporting agents are not yet required to provide this information

directly to the CRA. But there is no reason to believe that Canada

will not introduce cryptocurrency-oriented tax reporting


In fact, we may very well be advancing an international one

Cryptocurrency tax reporting system in which cryptocurrency

Exchanges must submit cross-border tax reports in which the

Identity and details of account holders, their cryptocurrency

Transactions and stocks exceed a certain threshold. For starters,

the United States government does not hesitate to ask for it

the whole world adheres to US tax law. In 2010 the US enacted

the Foreign Account Tax Compliance Act (FATCA), the

requires all non-US financial intuitions to notify the IRS

Accounts held by a US citizen or resident. The United

The US adoption of FATCA raised serious concerns among Canada

Banks. On the one hand, if they ignored the U.S. FATCA requirements,

faced American sanctions because many Canadians

Financial institutions had significant business in the United States. On the

on the other hand, if Canadian banks comply with US FATCA

Requirements, they risked violating Canadian privacy laws. The

Friction eventually led Canada and the US to join FATCA

Agreement in 2014. Under the FATCA agreement, Canadian banks must

still report essentially the same information about held accounts

by US citizens or by US citizens. But the information is first

reported to the Canada Revenue Agency under Part XVIII of Part

Canada's Income Tax Act. The CRA then forwards it

Information to the IRS under the Canada-US tax treaty

Provisions on the exchange of information that oblige the two countries to

Comply with their own national laws, including those relating to

Privacy. The real finding, however, is that the US had enough leverage to

Encourage Canada to file a US tax return in

Canada's own domestic tax law. So it is conceivable that

other countries can meet the requirements of the Biden administration

proposed rules for reporting cryptocurrencies.

In addition, the Organization for Economic Cooperation and

Development (OECD) has promised to end by the end of 2021

issue an updated standard for general reporting. The updated

Common Reporting Standard will contain model tax rules where the

Tax authorities of the OECD member countries are automatically

Exchange information about cryptocurrency transactions and

Participations of taxpayers under their jurisdiction. Of course if one

OECD member country like Canada is planning to implement the

Recommendations of the OECD, it must first be a first

Cryptocurrency reporting regime locally. Obviously a country

cannot provide any cryptocurrency related information to its OECD

Counterparties, unless it is already collecting this information for

itself. Therefore, the recommendations of the OECD are likely to motivate

Canada and other member countries adopt robust

Domestic cryptocurrency-focused tax reporting rules. The

the resulting network becomes essentially a worldwide one

Tax reporting system for cryptocurrency exchanges.

Professional Tax Tips – Professional Canadian tax advice from a Canadian tax

Attorney: Voluntary Unreported Cryptocurrency Disclosure Program

Income & lawyer and client privilege

The one from Biden. proposed measures for reporting cryptocurrencies

Administration and cooperation of tax authorities

signal the end of the anonymity with which taxpayers were once associated

with cryptocurrency investing and trading. Canadian taxpayers with

unreported profits from cryptocurrency transactions should

find these developments rightly concerning. If you filed taxes

Returns that have missed or underreported your cryptocurrency gains,

Not only do you risk civil fines, such as

grossly negligent penalties, but also criminal tax liability for taxes

Evade. Remember that an intermediate transaction such as

Buying Bitcoin which is then used to buy another

Cryptocurrency itself can lead to a tax liability.

You may be eligible for relief under the Canada Revenue Agency regulations

Voluntary Disclosure Program (VDP). If your

VDP application qualified, CRA renounces criminals

Law enforcement and gross negligence waiver (and may

Interest). A request for voluntary disclosure is time-sensitive,

however. The CRA's Voluntary Disclosure Program becomes one

Request – and thus deny any relief – unless the request is

"voluntary." This essentially means that the VDP

Receive your Voluntary Disclosure Request in front of the CRA

will contact you regarding the non-compliance that you attempted to disclose. Our

Experienced Tax Lawyer Canadian Tax Attorney

has helped many Canadian taxpayers correct violations

Include cryptocurrency. Our Canadian tax office can carefully

plan and prepare your application for self-assessment in a timely manner. A

A properly prepared disclosure request not only increases those

Likelihood that the voluntary disclosure program will be your

Disclosure, but also lays the groundwork for judicial review

Petition to federal court if the CRA is yours


To determine if you qualify for the voluntary information

Program, arrange a confidential and privileged consultation appointment with

one of our experienced Canadian tax attorneys. Attorney and client privilege

prevents the Canada Revenue Agency from legal

Advice you received from your Canadian tax attorney. But yours

Communication with an accountant remains unprotected. Well, if you

Obtain tax advice, but obtain this information from the

CRA, you should contact a Canadian tax attorney first. When a

Accountant is needed, your Canadian tax attorney can do the

Accountants on your behalf and expand the legal privilege.

The content of this article is intended to be general

Instructions on the subject. Technical advice should be obtained

about your particular circumstances.

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