New Proposed Regulations for Cryptocurrency Brokers Released by U.S. Treasury Spark Mixed Reactions in Crypto Community
The U.S. Treasury Department has unveiled a proposed regulation that would mandate cryptocurrency brokers, encompassing exchanges and payment processors, to furnish the Internal Revenue Service (IRS) with fresh details concerning users’ transactions involving digital assets.
This initiative is part of a wider drive by Congress and regulatory bodies to curb potential tax evasion among cryptocurrency users. The proposed solution is the introduction of a new tax reporting form, Form 1099-DA, designed to aid taxpayers in determining their tax obligations.
This form would simplify complex calculations and extend the same information reporting obligations to digital asset brokers as exist for brokers in the realm of traditional financial instruments like stocks and bonds.
This expansion encompasses both centralized and decentralized digital asset trading platforms, crypto payment processors, and specific online wallets holding digital assets, including cryptocurrencies like bitcoin, ether, and non-fungible tokens.
The proposed regulation would necessitate brokers to provide these forms to both the IRS and the holders of digital assets to facilitate accurate tax preparation. These regulatory changes emerge from the 2021 Infrastructure Investment and Jobs Act, a trillion-dollar bill aimed at bolstering infrastructure and employment, which included provisions to enhance tax reporting stipulations for digital asset brokers.
The IRS was tasked with establishing the classification of crypto broker firms and delivering requisite forms and instructions for reporting, while also extending reporting requirements to encompass certain digital asset transactions exceeding $10,000.
The Treasury Department envisions these rules coming into effect for brokers in 2025, applicable to the 2026 tax filing season. The department stated that this initiative is part of a broader endeavor to bridge the tax gap, mitigate tax evasion risks related to digital assets, and instill equitable adherence to regulations.
Reactions from the cryptocurrency industry have been diverse. Kristin Smith, CEO of the Blockchain Association, expressed that if executed effectively, these regulations could provide essential information for everyday crypto users to comply accurately with tax laws.
In contrast, Miller Whitehouse-Levine, CEO of the DeFi Education Fund, a lobbying group concentrating on decentralized finance, critiqued the proposal, deeming it confusing, contradictory, and misguided. He contended that it endeavors to apply regulatory frameworks built on the premise of intermediaries in situations where they do not exist.
Ryan Selkis, CEO of Messari, predicted that the future of the crypto sector within the nation would be eliminated if President Joe Biden secured reelection.
Moreover, Representative Patrick McHenry, Chair of the House Financial Services Committee, labeled the proposal as “yet another aspect of the Biden Administration’s ongoing assault on the digital asset ecosystem.”
It is worth noting that presently, the IRS mandates crypto users to report various digital asset activities, even trades that didn’t yield gains, on their tax returns. Users are obligated to perform these calculations themselves, as the platforms facilitating digital asset transactions do not transmit this information to the IRS.
Several Democratic senators, including Elizabeth Warren, penned a letter urging the Treasury to swiftly implement these rules, arguing that failure to do so would enable tax evaders and crypto intermediaries to exploit the system.
The Treasury Department and the IRS are soliciting feedback on the proposal until October 30, and public hearings are scheduled for November 7-8.
