The Biden administration reveals fresh regulations for reporting cryptocurrency taxes.

 

New U.S. Treasury Department Rule Proposes Enhanced Cryptocurrency Tax Reporting

A proposed rule from the U.S. Treasury Department, disclosed on Friday, stipulates that cryptocurrency brokers, encompassing exchanges and payment processors, would need to furnish additional details about users' digital asset sales and exchanges to the Internal Revenue Service (IRS).

This measure is part of a larger endeavor by both Congress and regulatory bodies to curb potential tax evasion within the cryptocurrency community.

The proposed rule introduces a novel tax reporting form dubbed Form 1099-DA, intended to assist taxpayers in ascertaining their tax obligations. By doing so, it aims to simplify the often intricate calculations required to determine gains for crypto users, as outlined by the Treasury Department.

Furthermore, the proposal aims to place digital asset brokers on par with their counterparts in the realm of conventional financial instruments, such as stocks and bonds, by subjecting them to equivalent information reporting requirements.

In accordance with the proposed rule, the definition of a "broker" would encompass both centralized and decentralized digital asset trading platforms, crypto payment processors, and specific online wallets designed for storing digital assets. The rule's scope extends to cryptocurrencies like bitcoin and ether, as well as non-fungible tokens.

To aid in tax preparation, brokers would be mandated to submit the forms to both the IRS and the holders of digital assets. These new mandates stem from the 2021 Infrastructure Investment and Jobs Act, which possessed a provision aiming to augment tax reporting prerequisites for digital asset brokers. The IRS was tasked with determining which entities qualified as crypto brokers and with furnishing forms and guidelines for reporting.

Additionally, the act extended reporting demands to cover particular cash transactions exceeding $10,000, now incorporating digital assets. At the time of passage, it was projected that these new provisions could generate almost $28 billion over a decade.

The Treasury Department's proposal outlines a target timeframe of 2025 for brokers to comply, with the rules expected to be effective for the 2026 tax filing season.

The Treasury conveyed, "This is part of a broader effort at Treasury to close the tax gap, address the tax evasion risks posed by digital assets, and help ensure that everyone plays by the same set of rules." The reception within the crypto industry was diverse. Kristin Smith, CEO of the Blockchain Association, expressed optimism that properly executed, the rules "could help provide everyday crypto users with the necessary information to accurately comply with tax laws."

Conversely, Miller Whitehouse-Levine, CEO of the DeFi Education Fund, a lobbying group focused on decentralized finance, criticized the proposed approach, asserting that it wouldn't simplify tax filing or enhance tax compliance. He stated, "Today's proposal from the IRS is confusing, self-refuting, and misguided. It attempts to apply regulatory frameworks predicated on the existence of intermediaries where they don't exist."

Currently, the IRS mandates that crypto users report numerous digital asset activities on their tax returns, irrespective of whether these transactions yielded gains. Individuals are responsible for calculating these gains themselves, as the platforms facilitating digital asset trades do not furnish this information to the IRS.

Several Democratic senators, including Elizabeth Warren, implored the Treasury Department in a recent letter to swiftly implement these rules, arguing that delayed action would allow tax evaders and crypto intermediaries to exploit the system.

Feedback on the proposal will be accepted by the Treasury Department and the IRS until October 30, with public hearings scheduled for November 7-8.