For years, cryptocurrency holdings of U.S. taxpayers have existed in a sort of reporting gray zone. But now, those crypto wallets are getting a whole lot of attention from the Internal Revenue Service and President Biden, who appear determined to crack down on tax cheats.
The timing makes sense.
The president needs to raise money, relatively quickly, for his own ambitious economic agenda. And the “tax gap,” which is the difference between taxes paid and taxes owed, is a big pool of cash ripe for the picking. IRS chief Charles Rettig says the country is losing about a trillion dollars every year in unpaid taxes, and he credits this growing tax gap, at least in part, to the rise of the crypto market.
The federal government is so convinced of the potential for income from back-due taxes that the White House wants to give the IRS an extra $80 billion and new powers to crack down on tax dodgers, including those parking their cash in crypto.
“The IRS is in the business of collecting revenue,” said Shehan Chandrasekera, CPA, and head of tax strategy at CoinTracker.io, a crypto tax software company.
“Historically, if they spend $1 for any type of enforcement activity, they make $5…I think crypto enforcement activities are even higher than that,” he said.
Non-compliance made easy
In the U.S., it is easy to be an unintentional crypto tax cheat.
For one, the IRS hasn’t exactly made it easy to report this information.
Tax year 2019 was the first time the IRS explicitly asked taxpayers whether they had dealt in crypto. A question on form Schedule 1 read, “At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?”
But experts said the question was vague, and crucially, not everyone files this specific document. A Schedule 1 is typically used to report income not listed on the Form 1040, such as capital gains, alimony, or gambling winnings.
So in 2020, the IRS upped its game by moving the virtual currency question to the 1040 itself, which is used by all individuals filing an annual income tax return.
“[They put it] right after your name and social security number, and before you put any income numbers or deduction numbers in,” explained Lewis Taub, CPA and director of tax services at Berkowitz Pollack Brant. This made the question virtually impossible to miss.
But perhaps the bigger issue, according to Shehan, is that many filers have no clue how to calculate their crypto capital gains and losses.
If you trade through a brokerage, you typically get a Form 1099-B spelling out your transaction proceeds, streamlining the reporting process.
That doesn’t happen in the crypto world, Shehan said. “Many crypto exchanges don’t report any information to the IRS.”
While some crypto exchanges have begun to issue a tax form known as the 1099-K – which is traditionally given to an individual who engages in at least 200 transactions worth an aggregate $20,000 or more – in the context of crypto, this form only reports the total value of transactions. The total value does not factor in how much the person paid for the cryptocurrency in the first place, something referred to as the “cost basis,” which makes it hard to calculate the taxable gain.
“A lot of people have actually over-reported their income, because they got confused,” explained Shehan.
But the biggest issue driving non-compliance is the fact that the tax rules surrounding digital currencies are still being worked out, and in a state of constant flux.
The IRS treats virtual currencies like bitcoin as property, meaning that it is taxed in a manner similar to stocks or real property. If you buy one bitcoin for $10,000 and sell it for $50,000, you face $40,000 of taxable capital gains. While this concept is relatively simple, it isn’t always clear what constitutes a “taxable event.”
Is buying dogecoin with your bitcoin a taxable event? Purchasing a TV with your dogecoin? Buyingan NFT with ether?
All of the above are technically taxable events.
“The government says if I buy something with crypto, it is as if I liquidated my crypto no differently than if I sold any other property,” said Taub.
Mining dogecoin for fun qualifies as self-employment income in the eyes of the government. According to cryptocurrency tax software TaxBit – which recently contracted with the IRS to aid the agency in digital currency-related audits – tax rates vary between 10-37% on mining proceeds.
“Crypto miners have to pay taxes on the fair market value of the mined coins at the time of receipt,” wrote crypto tax attorney Justin Woodward. While there are ways to get creative to minimize this tax burden, such as classifying mining as a business and deducting equipment and electricity expenses, it takes a bit of filing acrobatics to make it work.
Earning interest on the bitcoin sitting idle in your crypto wallet also counts as income and is taxed as such. Exchanges like Coinbase have also begun to send Form 1099-MISC to taxpayers who earned $600 or more on crypto rewards or staking.
The IRS crypto crackdown
Crypto trading volume may have fallen off a cliff in the last few weeks, but the overall market value of digital currencies is still up about 75% this year. The IRS has made it clear that it wants a piece of the action.
The agency recently ramped up efforts to subpoena centralized crypto exchanges for information about noncompliant U.S. taxpayers.
This spring, courts authorized the IRS to issue John Doe summonses to crypto exchange operators Kraken and Circle as a way to find individuals who conducted at least $20,000 of transactions in cryptocurrency from 2016 to 2020.
The IRS also put this same type of summons to use in 2016, when it went after Coinbase crypto transactions from 2013 to 2015.
Issuing these summons one exchange at a time is a clumsy way to capture noncompliant U.S. taxpayers, but it can be effective, according to Jon Feldhammer, a partner at law firm Baker Botts and a former IRS senior litigator.
In 2019, the IRS announced it was sending letters to more than 10,000 people who potentially failed to report crypto income.
Rettig said in a statement that taxpayers should take the letter “very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties.”
According to Shehan, the infamous “Letter 6173” gave individuals 30 days to respond to the IRS, otherwise they risked having their tax profile examined. Letters went out again in 2020, and a fresh round of these stern warnings are expected to be sent this autumn.
Even the threat of a letter has a lot of people seeking the counsel of accountants as to whether they should get ahead of a potential audit and be proactive about amending past returns.
“A lot of people ask me on Twitter: ‘Oh my god, in 2018, I had $200 worth of capital gains I didn’t report. What should I do?'” recounted Shehan. “In that case, it just is not worth amending the return to pick up $200 worth of income…The high-level thing is that if you didn’t do anything intentionally, you are fine.”
The IRS is also getting smarter about uncovering crypto tax evaders with the help of new data analytic tools it can employ in-house.
The agency’s partnership with TaxBit is a part of this effort. Taub describes the software as being able to go through cryptocurrency wallets and analyze them to figure out what was bought and sold in crypto. In addition to enlisting the services of the vendor itself, Taub says that IRS agents are being trained up on the software as a way to identify tax dodgers.
Biden’s new crypto rules
The president’s 2022 budget proposal could lead to a raft of new crypto reporting requirements for those dealing in digital coins.
The U.S. Treasury Department’s new “Greenbook,” released in May, calls for more comprehensive reporting requirements for crypto, so it’s as hard to spend digital currencies without getting reported as it is to spend cash today.
One proposal would require businesses to report to the IRS all cryptocurrency transactions valued at more than $10,000. Another calls for crypto asset exchanges and custodians to report data on user accounts which conduct at least $600 worth of gross inflows or outflows in a given year.
Another potential major blow to crypto holders: Biden’s proposal to raise the top tax rate on long-term capital gains to 43.4%, up from 23.8%.
“Crypto gains are being taxed as any other type of gain in assets, either at long-term capital gains or ordinary rates. President Biden has proposed to eliminate the difference between the two,” said David Lesperance, a Toronto-based attorney who specializes in relocating the rich.
Lesperance told CNBC the proposal would also function retroactively and apply to any transactions which took place after April 28, 2020.
“This translates into $19,800 in increased capital gains tax for each $100,000 in capital appreciation of crypto,” he said.
Amid the rising crypto crackdown here in the U.S., Lesperance has helped clients to expatriate in order to ditch their tax burden altogether.
“By exercising a properly executed expatriation strategy, the first $750,000 in capital appreciation is tax-free and the individual can organize themselves to pay no U.S. tax at all in the future,” he said.
But Lesperance warned that taxpayers need to move fast. “The runway to execute this strategy is very short,” he said.
Amazon workers plan to walk out over ‘lack of trust’ in leadership
Amazon employees plan to walk off the job Wednesday in protest of the company’s recent return-to-office mandate, layoffs and its environmental record.
Approximately 1,900 employees worldwide are expected to walk out at 3 p.m. ET, with about 900 of those workers gathering outside the Spheres, the massive glass domes that anchor Amazon’s Seattle headquarters, according to employee groups behind the effort. The walkout is being organized in part by Amazon Employees for Climate Justice, an influential worker organization that has repeatedly pressed the e-retailer on its climate stance.
The group said employees are walking out to highlight a “lack of trust in company leadership’s decision making.” Amazon recently initiated the largest layoffs in its 29-year history, cutting 27,000 jobs across its cloud computing, advertising and retail divisions, among several others, since last fall. On May 1, the company ordered corporate employees to start working from the office at least three days a week, largely bringing an end to the remote work arrangements some employees had settled into during the coronavirus pandemic.
Amazon employees are walking off the job at a precarious time inside the company. Amazon just wrapped up its employee cuts, and it continues to reckon with the rough economy and slowing retail sales, leaving staffers on the edge that further layoffs could still be in store.
Employees had urged Amazon leadership to drop the return-to-office mandate and crafted a petition, addressed to CEO Andy Jassy and the S-team. Staffers said the policy “runs contrary” to Amazon’s positions on diversity and inclusion, affordable housing, sustainability, and focus on being the “Earth’s Best Employer.”
The backlash to the return-to-office mandate spilled over into an internal Slack channel, and employees created a group called Remote Advocacy to express their concerns.
Amazon employees who moved during the pandemic or were hired for a remote role have expressed concern about how the return-to-office policy will affect them, CNBC previously reported. Amazon’s head count ballooned over the last three years, and it hired more employees outside of its key tech hubs such as Seattle, New York and Northern California as it embraced a more distributed workforce.
The company had previously said it would leave it up to individual managers to decide what working arrangements worked best for their teams.
Amazon spokesperson Brad Glasser said in a statement that the company has so far been pleased with the results of its return-to-office push.
“There’s more energy, collaboration, and connections happening, and we’ve heard this from lots of employees and the businesses that surround our offices,” Glasser added. “We understand that it’s going to take time to adjust back to being in the office more and there are a lot of teams at the company working hard to make this transition as smooth as possible for employees.”
Amazon says it has 65,000 corporate and tech employees in the Puget Sound region and roughly 350,000 corporate and tech workers worldwide.
Employees are also using the walkout to draw attention to concerns that Amazon isn’t meeting its climate commitments. They pointed to Amazon’s most recent sustainability report, which showed its carbon emissions jumped 40% in 2021 from 2019, the year it unveiled its “Climate Pledge” plan. Staffers also highlighted a report last year by Reveal from the Center for Investigative Reporting that found the company undercounts its carbon footprint by only counting product carbon emissions from the use of Amazon-branded goods, and not those it buys from manufacturers and sells directly to the consumer.
Glasser said Amazon follows guidance from the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard in determining its Scope 3 emissions, or emissions generated from a company’s supply chain.
Additionally, Amazon recently eliminated one of its climate goals, called Shipment Zero, wherein the company pledged to make half of all its shipments carbon neutral by 2030. Amazon said it would focus on its broader Climate Pledge, which includes a provision to reach net zero carbon emissions by 2040, a decade later than its original Shipment Zero commitment.
“Our goal is to change Amazon’s cost/benefit analysis on making harmful, unilateral decisions that are having an outsized impact on people of color, women, LGBTQ people, people with disabilities, and other vulnerable people,” the group said.
Glasser said Amazon continues to “push hard” to be net carbon zero across its business by 2040. The company remains on track to reach 100% renewable energy by 2025, he added.
“While we all would like to get there tomorrow, for companies like ours who consume a lot of power, and have very substantial transportation, packaging, and physical building assets, it’ll take time to accomplish,” Glasser said.
WATCH: Amazon employees protest about sudden return-to-office policy
British digital bank Monzo hits monthly profitability for the first time after spike in lending
A Mastercard debit card from U.K. digital bank Monzo.
Monzo on Wednesday said it hit profitability for the first time this year, in a major milestone for one of the U.K.’s most prominent digital banks.
In its annual report for the year ending February 2023, Monzo reported net operating income of £214.5 million ($266.1 million), almost doubling year-over-year from £114 million.
Losses at the bank nevertheless came in at a substantial £116.3 million — though this was slightly lower than the £119 million net loss Monzo reported in 2022.
Still, the company managed to reach profitability in the first two months of the year.
In its annual report, Chief Financial Officer James Davies said Monzo is “now a business with diverse and stabilising revenue from a large, and growing, personal and business customer base.”
“Profitability was always a choice as we balance continuing to invest in growth with profitability,” Monzo’s CEO, TS Anil, told CNBC in an interview. “We could have chosen to be profitable a few quarters ago.”
Monzo is not the first digital bank to hit profitability. Starling Bank reached that milestone for the first time in 2021. Fellow fintech Allica Bank reached monthly profitability last year.
Monzo’s move into the black was largely thanks to a substantial increase in income from newer revenue lines, such as lending and subscriptions. Paid accounts now total 350,000.
Monzo declined to share a figure on how much of a profit it is making currently. The firm said it is on track to reach full-year profitability by the end of 2024.
Monzo’s strong revenue performance was driven by a bumper year for its lending business. This came against a backdrop of pain for U.K. consumers, who’re grappling with a harsh cost-of-living crisis as inflation soars.
Total lending volume reached £759.7 million, almost tripling year-on-year, while net interest income spiked by 382% to £164.2 million. That was as usage of overdrafts, unsecured personal loans, and the Monzo Flex buy now, pay later service grew sharply.
Yet credit losses also surged dramatically, as the bank set aside a mountain of funds to deal with a sharp climb in anticipated defaults. Credit losses swelled to £101.2 million, a more than sevenfold increase from £14 million in 2022.
It comes as consumers are increasingly turning to unsecured credit, such as credit cards and personal loans, to offset the impact of the rising cost of living. Research from consulting firm PwC indicates U.K. household debt exceeded £2 trillion for the first time in January.
Monzo’s boss disputed that the cost-of-living crisis had contributed to its revenue performance.
“The cost-of-living crisis was painful for everyone, but it really underscored the ways in which the Monzo product is incredibly powerful,” Anil told CNBC.
He added the growing cost of living impacted how people used Monzo products, with usage of its savings pots and budgeting tools rising.
Meanwhile, Monzo said it continues to work with the Financial Conduct Authority regulator over an ongoing inquiry into the company’s alleged breaches of anti-money laundering laws.
“We expect it to take time to resolve,” Monzo said. “This could have a negative impact on our financial position, but we won’t know when or what the outcome will be for some time.”
UK ‘not holding us back’
The fintech sector has experienced increasing scrutiny since it grew in prominence after the 2020 Covid outbreak.
Major digital banks, from Revolut to N26, are receiving heightened attention from regulators. Revolut is reportedly set to have its application for a banking license rejected by the Bank of England, according to the Telegraph.
A number of tech bosses have expressed doubts about the U.K.’s bid to become a global tech power on the back of notable setbacks, including Cambridge-based chip design firm Arm’s decision to list in New York rather than London.
Revolut CEO Nik Storonsky earlier this month said his firm had encountered “extreme bureaucracy” in its experience applying for a banking license in the U.K. and said he would never list in the country. Monzo co-founder Tom Blomfield, meanwhile, left London for San Francisco, citing a “much more accepting” environment for tech founders.
“From our perspective, this is a country where we got licensed, this is our home market; we’ve clearly learned this is where we can build a business of scale,” Monzo’s Anil said. “It’s not holding us back, I don’t think of it like that at all.”
Monzo now has 7.4 million customers in the U.K., making it the seventh-largest bank in the U.K. by client numbers. Total customer deposits now stand at £6 billion.
Elon Musk’s visit underscores China’s importance to global EV market, analysts say
An aerial view of Tesla Shanghai Gigafactory on March 29, 2021 in Shanghai, China.
Xiaolu Chu | Getty Images News | Getty Images
From handshakes with Chinese officials to visits to China’s top ministries, Elon Musk’s visit to Beijing is putting the spotlight on China’s place in the global electric vehicle market.
The Tesla CEO’s visit to China is a “very important one” for him, said Anthony Sassine, senior investment strategist at investment manager Kraneshares.
China accounts for 50% of Tesla’s vehicle sales and 20% of its production capacity, and this visit would “set the story straight, to make sure he was on the same page as the [Chinese Communist Party],” Sassine told CNBC’s “Street Signs Asia.”
During Tesla’s earnings call in April, Musk identified U.S.-China tensions as a risk to the company’s projections for 2023.
Politics and macroeconomics
Sassine said the visit could also be seen as a “political statement” to China, where business leaders like Musk and JPMorgan chief Jamie Dimon are “telling politicians on both sides of the Pacific that business needs political stability.”
Politics is not the only reason. Sassine pointed out that the macro environment for EVs in China has been “tough,” and highlighted China’s ending of subsidies on new EV purchases, as well as rising interest rates in the U.S.
In the face of such conditions, companies have slashed prices to boost sales, and this will hurt their profits, he said.
Tesla slashed prices for its EV sales in China last October and January, but subsequently raised prices again in May. Still, the price of Tesla’s cars remains lower than at the start of 2023 due to several rounds of price cuts across the world.
The fact that Tesla was forced to slash prices in the first place shows how important the China market is to the U.S. electric carmaker, said Bill Russo, founder and CEO of strategy and investment advisory firm Automobility.
“It signals how important the China market is to defend and how important it is to your global system, you need the scale of China working for you,” he said on CNBC’s “Squawk Box Asia.”
Russo said Tesla needs the economies of scale that China provides to maintain its cost advantage globally, “but in order to sustain that, you need to make sure that you maintain your relevance here.”
It won’t be easy for Tesla, however. He noted that China the most competitive market for EVs, with Tesla competing with multiple local companies for supremacy. “Tesla is, unlike other places in the world, not the only top dog in this market,” he added.
When asked if Tesla’s strategy of cutting prices is appropriate, Russo said Tesla is “fighting with an older portfolio” — Model 3 was launched three years ago and Model Y two years ago.
As such, it has had to use price to compete against Chinese EV companies that are introducing new models and to counter the aging of its product portfolio.
Russo pointed out that Chinese EV maker BYD sells extended range hybrids. This is “a weapon that Tesla doesn’t have,” he said adding that BYD also outsells Tesla two to one in the pure battery electric business.
As such, Tesla has to rely on pricing to maintain its competitiveness, unlike other places around the world where it doesn’t face such stiff competition.
“The problem is Tesla everywhere else in the world represents ‘premium EV,’ but in order to fight the battle here in China, you’ve got to wage a price war,” he said.
“Generally price wars are won by companies who can outprice you and right now Tesla is not the lowest price competitor in the market.”
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