{"id":84073,"date":"2021-09-29T11:27:53","date_gmt":"2021-09-29T15:27:53","guid":{"rendered":"https:\/\/www.bu.edu\/law\/?post_type=bu-article&#038;p=84073"},"modified":"2022-08-01T15:03:42","modified_gmt":"2022-08-01T19:03:42","slug":"taxing-cryptocurrency","status":"publish","type":"bu-article","link":"https:\/\/www.bu.edu\/law\/record\/articles\/2021\/taxing-cryptocurrency\/","title":{"rendered":"A Cryptocurrency Conundrum"},"content":{"rendered":"\t<div class=\"wp-block-editorial-leadin record-block-editorial-leadin is-style-text-over-image has-media has-media-focus-center-middle has-text-position-x-center has-text-position-y-top has-secondary-theme\">\n\t\t<div class=\"container-lockup\">\n\n\t\t\t<div class=\"wp-block-leadin-media\">\n\t\t\t\t\n\t\t\t\t<img width=\"1800\" height=\"1200\" src=\"\/law\/files\/2021\/09\/cryptocurrency-pierre-borthiry-unsplash.jpg\" class=\"\" alt=\"Two cryptocurrency coins in front of a computer screen with red and blue charts\" loading=\"lazy\" srcset=\"https:\/\/www.bu.edu\/law\/files\/2021\/09\/cryptocurrency-pierre-borthiry-unsplash.jpg 1800w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/cryptocurrency-pierre-borthiry-unsplash-636x424.jpg 636w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/cryptocurrency-pierre-borthiry-unsplash-1024x683.jpg 1024w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/cryptocurrency-pierre-borthiry-unsplash-768x512.jpg 768w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/cryptocurrency-pierre-borthiry-unsplash-1536x1024.jpg 1536w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/cryptocurrency-pierre-borthiry-unsplash-1200x800.jpg 1200w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/cryptocurrency-pierre-borthiry-unsplash-992x661.jpg 992w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/cryptocurrency-pierre-borthiry-unsplash-1500x1000.jpg 1500w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/cryptocurrency-pierre-borthiry-unsplash-500x333.jpg 500w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/cryptocurrency-pierre-borthiry-unsplash-1000x667.jpg 1000w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/cryptocurrency-pierre-borthiry-unsplash-900x600.jpg 900w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/cryptocurrency-pierre-borthiry-unsplash-450x300.jpg 450w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/cryptocurrency-pierre-borthiry-unsplash-600x400.jpg 600w\" sizes=\"(max-width: 1800px) 100vw, 1800px\" \/>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t<p class=\"wp-block-editorial-leadin-caption wp-prepress-component-caption\">Photo by Pierre Borthiry via Unsplash<\/p>\n\t\t\t\n\n\t\t\t\n\t\t\t\t<div class=\"container-words-outer\">\n\n\t\t\t\t\t\n\t\t\t\t\t<div class=\"container-words-inner\">\n\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<span class=\"wp-prepress-tag\">Tax Law<\/span>\n\t\t\t\t\t\t\t\t<h1 class=\"head\">\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tA Cryptocurrency Conundrum\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/h1>\n\t\t\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t<h4 class=\"deck\">Adjunct Professor Richard Ainsworth tackles regulation of the notoriously opaque sector.<\/h4>\n\t\t\t\t\t\t\n\t\t\t\t\t<\/div>\n\n\t\t\t\t<\/div>\n\n\t\t\t\n\t\t<\/div>\n\n\t\t\n\t<\/div>\n\n\t\n<div class=\"wp-prepress-component-metabar record-prepress-layout-metabar\">\n\t<div class=\"wp-prepress-component-metabar-wrapper\">\n\t\t\t\t\t<div class=\"wp-prepress-component-metabar-date\">September 29, 2021<\/div>\n\t\t\n\t\t\t\t<div class=\"wp-prepress-component-metabar-credits\">\n\t\t\t\t\t\t\t\t<ul data-credit-type=\"By\">\n\t\t\t\t\t\t<li><a href=\"https:\/\/www.bu.edu\/law\/record\/authors\/laura-ernde\/\">Laura Ernde<\/a><\/li>\n\t\t\t\t\t<\/ul>\n\t\t\t\t\t\t\t<\/div>\n\t\t<div class=\"wp-prepress-component-metabar-share js-bu-prepress-share-tools\">\n\t\t\t<span class=\"icon-twitter\"><span>Twitter<\/span><\/span>\n\t\t\t<span class=\"icon-facebook\"><span>Facebook<\/span><\/span>\n\t\t\t<span class=\"icon-action\"><\/span>\n\t\t<\/div>\n\t<\/div>\n<\/div>\n\n\t\n\n\n<p>As Congress and others debate how to regulate the notoriously opaque cryptocurrency sector, Boston University School of Law Adjunct Professor <a href=\"https:\/\/www.bu.edu\/law\/profile\/richard-t-ainsworth-2\/\" target=\"_blank\" rel=\"noreferrer noopener\">Richard Ainsworth<\/a> <a href=\"https:\/\/scholarship.law.bu.edu\/faculty_scholarship\/1004\/\" target=\"_blank\" rel=\"noreferrer noopener\">offers a deceptively simple proposal<\/a>\u2014collect a tax on each cryptocurrency transaction and dedicate the proceeds to help fight global problems such as the COVID-19 pandemic.<\/p>\n\n\n\n<div class=\"wp-block-image alignfarright\"><figure class=\"alignright size-full is-resized\"><img loading=\"lazy\" src=\"\/law\/files\/2021\/09\/Ainsworth_Richard-2014.jpg\" alt=\"Adjunct Professor Richard Ainsworth\" class=\"wp-image-84067\" width=\"399\" height=\"600\" srcset=\"https:\/\/www.bu.edu\/law\/files\/2021\/09\/Ainsworth_Richard-2014.jpg 798w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/Ainsworth_Richard-2014-423x636.jpg 423w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/Ainsworth_Richard-2014-681x1024.jpg 681w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/Ainsworth_Richard-2014-768x1155.jpg 768w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/Ainsworth_Richard-2014-549x826.jpg 549w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/Ainsworth_Richard-2014-454x682.jpg 454w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/Ainsworth_Richard-2014-686x1032.jpg 686w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/Ainsworth_Richard-2014-229x344.jpg 229w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/Ainsworth_Richard-2014-352x529.jpg 352w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/Ainsworth_Richard-2014-458x688.jpg 458w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/Ainsworth_Richard-2014-704x1058.jpg 704w, https:\/\/www.bu.edu\/law\/files\/2021\/09\/Ainsworth_Richard-2014-665x1000.jpg 665w\" sizes=\"(max-width: 399px) 100vw, 399px\" \/><figcaption>BU Law Adjunct Professor Richard Ainsworth<\/figcaption><\/figure><\/div>\n\n\n\n<p>Cryptocurrency\u2014a digital currency secured by anonymous lines of computer code\u2014once appealed mainly to tech-savvy investors and those trying to shield their activities from law enforcement. But as crypto investing goes mainstream\u2014with the market growing to an <a href=\"https:\/\/www.cnbc.com\/2021\/08\/16\/crypto-news-btc-doge-rally-microsoft-may-use-ethereum-for-antipiracy.html\" target=\"_blank\" rel=\"noreferrer noopener\">estimated $2 billion<\/a>\u2014federal regulators have <a href=\"https:\/\/www.politico.com\/news\/2021\/08\/17\/cryptocurrency-legal-crackdown-505595\" target=\"_blank\" rel=\"noreferrer noopener\">begun eyeing ways<\/a> to protect consumers and crack down on tax evasion.&nbsp;<\/p>\n\n\n\n<p>This summer, lawmakers took the first step toward regulation by proposing <a href=\"https:\/\/apnews.com\/article\/technology-joe-biden-business-bills-cryptocurrency-92628a41124230448f65fdeb89ffad7d\" target=\"_blank\" rel=\"noreferrer noopener\">new tax-reporting requirements for cryptocurrency transactions<\/a> as part of the $1 trillion infrastructure bill. Unlike stockbrokers, cryptocurrency brokers don\u2019t have to report investor gains and losses to the IRS, making it easier for people to cheat the tax system.<\/p>\n\n\n\n<p>SEC Chairman Gary Gensler has <a href=\"https:\/\/www.npr.org\/2021\/08\/20\/1029436872\/tougher-rules-are-coming-for-bitcoin-and-other-cryptocurrencies-heres-what-to-kn\" target=\"_blank\" rel=\"noreferrer noopener\">signaled a desire to regulate an industry<\/a> he calls \u201crife with fraud, scams, and abuse.\u201d Testifying before the Senate Banking Committee in September, <a href=\"https:\/\/www.banking.senate.gov\/imo\/media\/doc\/Gensler%20Testimony%209-14-21.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Gensler argues<\/a> that regulation will strengthen the crypto industry. \u201cI think that this technology has been and can continue to be a catalyst for change, but technologies don\u2019t last long if they stay outside of the regulatory framework.\u201d<\/p>\n\n\n\n<p>Ainsworth\u2019s proposal aims to thread the needle between regulating the industry without squashing innovation.<\/p>\n\n\n\n<p>\u201cThis research is one example of how the tax program is at the forefront of important conversations about the taxation and regulation of digital currency,&#8221; says <a href=\"https:\/\/www.bu.edu\/law\/profile\/christina-rice\/\">Christina R. Rice<\/a>, director of BU Law\u2019s Graduate Tax Program.<\/p>\n\n\n\n<p>One of the most significant challenges regulators face is imposing new rules without destroying the cryptocurrency market, Ainsworth says.<\/p>\n\n\n\n<p>In a scholarly paper published in <em>Tax Notes International<\/em> last year with New York University School of Law student Xiuyuan (Tony) Hu, Ainsworth argues that any taxing system needs to preserve the anonymity of transactions. This feature draws cryptocurrency users to digital exchange platforms in the first place. Users will go elsewhere, carrying on with their criminal enterprises and leaving the tax authorities high and dry.<\/p>\n\n\n\n<p>\u201cThese guys will melt away faster than a snowball in the summertime,\u201d he says of the tech-savvy cryptocurrency set.<\/p>\n\n\n\n<p>Imposing a flat tax on each transaction is not a perfect solution. For example, it doesn\u2019t solve the problem of people exploiting the privacy that cryptocurrency provides for nefarious purposes such as funding terrorism and dealing drugs. And it doesn\u2019t tax individuals based on the profits they receive from crypto investments. That means that crypto speculators could continue to accumulate capital gains that are not reported to the IRS.<\/p>\n\n\n\n<p>But, Ainsworth says, it\u2019s a good first step toward getting a handle on the emerging digital currency market, which has proven difficult for law enforcement to penetrate. A study by three researchers in Australia\u2014Sean Foley, Jonathan R. Karlsen, and T\u0101lis J. Putni\u0146\u0161\u2014who estimated that as of August 2017 \u201cat least 27 million bitcoin market participants were using the cryptocurrency primarily for illegal purposes to conduct some 37 million transactions each year.\u201d<\/p>\n\n\n\n<div class=\"wp-block-bu-pullquote record-block-bu-pullquote alignwide is-style- has-image-focus-center-middle has-secondary-theme\"><div class=\"wp-block-bu-pullquote-inner\"><figure><\/figure><blockquote><div class=\"container-lockup\"><div class=\"container-icon-outer\"><div class=\"container-icon-inner\"><\/div><\/div><div class=\"container-text\"><hr\/><div class=\"quote-sizing\">We\u2019re not trying to stop crime. We\u2019re trying to collect an honest amount of revenue. In a sense, we\u2019ve been subsidizing these operations by giving them a tax-free way of conducting criminal activity<\/div><footer class=\"caption\">Adjunct Professor Richard Ainsworth<\/footer><hr\/><\/div><\/div><\/blockquote><\/div><\/div>\n\n\n\n<p>His proposal doesn\u2019t target the criminals but takes a more manageable path by collecting taxes from the companies running the exchanges that allow people to trade in the market. These platforms have an incentive to follow the law so they can market themselves to the public as legitimate places to do business.<\/p>\n\n\n\n<p>\u201cWe\u2019re not trying to stop crime,\u201d Ainsworth says of his proposal. \u201cWe\u2019re trying to collect an honest amount of revenue. In a sense, we\u2019ve been subsidizing these operations by giving them a tax-free way of conducting criminal activity.\u201d<\/p>\n\n\n\n<p>It may not seem fair to tax both legitimate and illegitimate transactions at the same rate. Still, Ainsworth argues that many consumers would be willing to pay a premium for the financial privacy that digital currency provides. Governments could also devise tax credits or rebates for law-abiding consumers.<\/p>\n\n\n\n<p>The money raised by the tax would then be distributed based on need\u2014for example, to distribute vaccines, provide humanitarian assistance to hard-hit jurisdictions, or help the world prepare for the next pandemic.<\/p>\n\n\n\n<p>Ideally, a global body such as the United Nations would administer the funds. Ainsworth concedes this would require \u201cstrong international cooperation and political will.\u201d<\/p>\n\n\n\n<p>One of the other major challenges in regulating crypto exchanges in the US is determining which agency is responsible. The Securities and Exchange Commission, the Treasury Department, and the Internal Revenue Service could conceivably be involved, Ainsworth says. The Consumer Financial Protection Bureau is also positioning to <a href=\"https:\/\/www.sidley.com\/en\/insights\/publications\/2021\/07\/recent-analysis-of-cfpb-data-shows-exponential-increase-in-fintech-and-crypto-complaints-to-cfpb\" target=\"_blank\" rel=\"noreferrer noopener\">take the lead on enforcement <\/a>in response to a sharp increase in consumer complaints about cryptocurrencies.<\/p>\n\n\n\n<p>If regulation takes the form of a tax, as Ainsworth proposes, other countries would also need to agree to the taxing scheme to prevent people and companies from moving their accounts offshore.<\/p>\n\n\n\n<p>The idea for taxing crypto transactions arose during Ainsworth\u2019s Tax Fraud and Technology class, where students explore how people are cheating the system using technology and how to prevent that fraud.<\/p>\n\n\n\n<p>\u201cIt\u2019s a good melting pot,\u201d he says. \u201cIf you ask good questions to good students, you get new ideas.\u201d<\/p>\n\n\n\n<p class=\"is-style-end-of-article\">It remains to be seen whether the idea will gain any traction in the regulatory arena. \u201cThis is a very contemporary idea. It\u2019s marketable because it\u2019s easy to explain, and it\u2019s highly creative,\u201d Ainsworth says. \u201cI don\u2019t see anybody else proposing something like this.\u201d<\/p>\n\n\n","protected":false},"excerpt":{"rendered":"<p>As Congress and others debate how to regulate the notoriously opaque cryptocurrency sector, Boston University School of Law Adjunct Professor Richard Ainsworth offers a deceptively simple proposal\u2014collect a tax on each cryptocurrency transaction and dedicate the proceeds to help fight global problems such as the COVID-19 pandemic.<\/p>\n","protected":false},"author":11260,"featured_media":84070,"comment_status":"closed","ping_status":"closed","template":"","meta":{"bu_prepress_billboard":"{\"post_id\":62017,\"hed\":\"Tech is Changing Tax Law. 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