Crypto Industry Battles to Exempt NFTs, DeFi From Tax Reporting Rules

More instability in crypto world 

Crypto Industry Battles to Exempt NFTs, DeFi From Tax Reporting Rules.  The OECD is trying to introduce new rules to stop crypto being used to stash assets out of sight of the taxman.  

By Jack Schickler in Coindesk 

Crypto industry representatives pushed back at attempts to make them report details of NFTs, decentralized finance (DeFi) transactions and retail payments to tax authorities at a meeting of the Organization for Economic Co-operation and Development (OECD) in Paris on Monday.

Under existing rules, known as the Common Reporting Standard (CRS) – whose U.S. equivalent is the Foreign Account Tax Compliance Act (FATCA) – banks are required to identify any account holders who are tax residents abroad and send their details to the appropriate authorities to make sure they aren’t evading tax.  ...'

But the industry has argued these requirements are a lot harder to meet for NFTs whose price – unlike, say, stocks or gold – isn’t known at any given time. They also point out that similar non-digital assets such as paintings aren’t included in existing rules ....  '

Government Authority Falls Due to Algorithm

Regulation 0f algorithms causes Dutch Tax Authority to fail.  An unusual event.  Fairness and impacts. 

The Dutch Tax Authority Was Felled by AI—What Comes Next? European regulation hopes to rein in ill-behaving algorithms by RAHUL RAO     in Spectrum IEEE

Until recently, it wasn’t possible to say that AI had a hand in forcing a government to resign. But that’s precisely what happened in the Netherlands in January 2021, when the incumbent cabinet resigned over the so-called kinderopvangtoeslagaffaire: the childcare benefits affair.

When a family in the Netherlands sought to claim their government childcare allowance, they needed to file a claim with the Dutch tax authority. Those claims passed through the gauntlet of a self-learning algorithm, initially deployed in 2013. In the tax authority’s workflow, the algorithm would first vet claims for signs of fraud, and humans would scrutinize those claims it flagged as high risk.

In reality, the algorithm developed a pattern of falsely labeling claims as fraudulent, and harried civil servants rubber-stamped the fraud labels. So, for years, the tax authority baselessly ordered thousands of families to pay back their claims, pushing many into onerous debt and destroying lives in the process.

“When there is disparate impact, there needs to be societal discussion around this, whether this is fair. We need to define what ‘fair’ is,” says Yong Suk Lee, a professor of technology, economy, and global affairs at the University of Notre Dame, in the United States. “But that process did not exist.”

Postmortems of the affair showed evidence of bias. Many of the victims had lower incomes, and a disproportionate number had ethnic minority or immigrant backgrounds. The model saw not being a Dutch citizen as a risk factor.

“The performance of the model, of the algorithm, needs to be transparent or published by different groups,” says Lee. That includes things like what the model’s accuracy rate is like, he adds.  .... '

AI Used to Support the US Tax Code

Makes perfect sense to look for patterns and predictions based on complex rules. 

AI Comes to the Tax Code   By The Wall Street Journal

The U.S. Internal Revenue Service is using artificial intelligence to map taxpayer relationships.
The Internal Revenue Service is using artificial intelligence to design machine-built graphs that map the relationships of participants in business deals.

Governments increasingly are using artificial intelligence (AI) and data analytics to detect tax evasion, respond to taxpayer questions, and boost efficiency.

The U.S. Internal Revenue Service is designing machine-built graphs to map relationships among participants in business deals, allowing auditors to analyze transactions for signs of tax avoidance.
The agency also is employing AI to study notes that workers take when fielding questions from taxpayers, and testing which mixtures of formal notices and  contacts will most likely encourage taxpayers who owe money to pay off debts.

However, experts see potential harm if audit-selection algorithms inadvertently exhibit bias against taxpayers by race or location.

Tax preparers and accounting firms also utilize AI to minimize tax bills and advise clients.

From The Wall Street Journal
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Crypto Tax Formal Regulation at Hand?

Saw this in MIT Technology Reviews:  Chain+Letter newsletter, much recommended as a place to stay up to date on the topic and related regulatory changes

The IRS really needs an exemption for crypto
By Matthew De Silva in Quartz

The taxman cometh, and he asketh about virtual currency.

The US tax agency has released a new draft of its Schedule 1 form, used by taxpayers to report additional income and deductions. For 2019 tax filers, the Internal Revenue Service has posed a new question, prominently listed at the top of the document: ”At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”  .... "

AI and Taxes

Reading the rest to determine how this is done.  Via determining algorithms via machine learning.  Note also the insertion of 'jurisdictional rules'

Deloitte uses AI to transform indirect tax recovery

Tax technology spotlight: CognitiveTax Insight™ solution uses machine learning and analytics to transform the tax office, saving time and reducing overpayments

NEW YORK, Aug. 8, 2019 /PRNewswire/ -- For decades, tax professionals have managed the analysis of complex data for indirect tax recovery through time-consuming statistical analysis and sample sets. Due to the sheer amount of data and complex jurisdictional rules, it was nearly impossible for many companies to analyze all indirect tax transactions. As a result, significant indirect tax refunds may not have been claimed. However, technological breakthroughs of the last few years are making this a challenge of the past. Deloitte has deployed a technology-enabled solution — CognitiveTax Insight™ (CogTax) — that provides an increased, improved, and more efficient analysis of clients' indirect tax data set. CogTax has the ability to analyze the full population, if desired, of a clients' accounts payable transactions compared to a traditional, sampled approach.

The solution not only allows tax professionals to save time and resources but can help companies to proactively avoid overpaying their indirect tax liabilities. CogTax leverages optical character recognition (OCR), along with advanced machine learning algorithms and analytics, to effectively analyze a full population of data and documents to assist clients with indirect tax overpayment recovery and reduce the potential for future over or underpayments.  ... "