Binance sets the record straight on crypto’s use in tax evasion – Cryptopolitan

Time and time again, Binance has been proven committed to improving the global understanding of blockchain and crypto by making Web3 education accessible to all. Despite the interest in the subject, many individuals have only a superficial or non-existent understanding, leading to many misconceptions and false beliefs.

Some of these beliefs may be harmless, but others fuel fear and uncertainty, causing people to be unduly suspicious of digital assets. Binance actively identifies and debunks the most widespread misconceptions to promote crypto literacy.

Binance takes on the myth that crypto is used in tax evasion

As reported by Binance, due to crypto’s decentralized nature, these assets can operate independently of a central authority, such as a government or a bank. While this feature provides benefits such as increased security, it also contributes to the misconception that tax evaders can exploit a vulnerability.

The transactions made with cryptocurrencies are recorded in a public ledger, but the identity of the users is (at least partially) hidden. This anonymity, the argument goes, makes it difficult for tax authorities to track down individuals who use cryptocurrencies to hide their income or assets. Consistent with the myth, CNBC published an article in 2021 titled “Cryptocurrency poses significant risk of tax evasion.”

Here’s the reality: Blockchain is the ultimate money trail. Blockchain networks are meant to serve as digital ledgers for crypto transactions that are publicly available, visible and accessible. The transaction records are transparent and immutable by design. Binance compares this to traditional financial services, where tax havens are easily created through offshore bank accounts and intricate corporate structures.

By using a block explorer, which is an online tool that shows, among other things, the history of all transactions and their associated addresses, anyone can examine the entire blockchain codebase at any time.

In reality, blockchain technology creates a detailed and transparent record of your transactions, making it one of the worst methods of hiding financial activity from the authorities.

The regulatory arm cracks down on tax evasion

Binance has been on the receiving end of regulatory breaches. The Internal Revenue Service (IRS) has issued guidance on the tax treatment of crypto and increased enforcement efforts in the United States. Other nations are adopting similar measures to regulate cryptocurrencies and prevent their use in illegal activities.

The resources and enforcement capacity of tax authorities around the world vary considerably. However, the coming years will undoubtedly witness a significant increase in chain audits. Since transactions in public blockchain ledgers are permanent, tax inspectors will be able to look back for illegal or unreported transactions from previous years.

In addition, crypto exchanges, including Binance, must comply with anti-money laundering (AML) and know-your-customer (KYC) regulations, which require them to collect identifying information from users and report suspicious activity to the appropriate authorities.

Binance is witnessing specific crypto-reporting obligations also being designed and implemented globally, such as the Crypto-Asset Reporting Framework (CARF), which was approved by the OECD in August 2022 and provides for standardized reporting of tax information on digital asset transactions.

Binance summarizes that it is unlikely that you can use crypto for tax evasion without getting caught.

Is paying crypto tax a good thing?

Binance believes that tax compliance is about more than just complying with the law. It involves contributing to future prosperity for the blockchain industry. People paying their crypto tax increases the legitimacy of the ecosystem, which in turn attracts more users, investors and businesses.

According to Binance, compliance with tax laws is critical to the widespread adoption and legitimacy of the entire crypto and Web3 ecosystem. Binance encourages more crypto users to comply with tax laws and regulations to dispel the misconception that crypto is a tool for tax evasion, which hinders the industry’s development.

Compliance also improves the overall crypto experience, as non-compliance can result in monetary penalties and legal action. According to Binance, legitimacy provides the crypto industry with stability, innovation, expansion and potentially more favorable government policy and regulatory environments.

Binance states that while some individuals may attempt to use cryptocurrencies for tax evasion, blockchain technology makes it easier for authorities to identify and prosecute financial offenders.