The US Treasury Department has recently published a proposed rule requiring cryptocurrency brokers, including exchanges and payment processors, to report user information regarding sales and exchanges of digital assets to the Internal Revenue Service (IRS).
According to a CNBC report, the move is part of a broader effort by Congress and regulatory authorities to crack down on tax evasion within the crypto space. The proposed rule aims to simplify tax reporting for cryptocurrency users while subjecting digital asset brokers to the exact information reporting requirements as brokers in traditional financial markets.
Crypto Exchanges Brace For New IRS Reporting Rule
The proposed rule introduces a new tax reporting form called Form 1099-DA, which would assist taxpayers in determining their tax liabilities. By providing comprehensive information on users’ cryptocurrency transactions, the form aims to alleviate the “complexities” associated with calculating gains.
Per the report, the US Treasury Department believes that this streamlined approach will help individuals meet their tax obligations more efficiently.
Under the proposed rule, a “broker” would encompass centralized and decentralized crypto trading platforms, crypto payment processors, and specific online wallets that store digital assets.
According to CNBC, this approach ensures that a wide range of entities facilitating cryptocurrency transactions are subject to the reporting requirements.
Moreover, the rule would cover popular cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH), as well as non-fungible tokens (NFTs).
Furthermore, the proposed rule not only aligns reporting obligations for crypto brokers with those for brokers in traditional financial markets, such as stocks and bonds, but also extends reporting requirements for cash transactions exceeding $10,000 to digital assets.
According to the Biden administration, these measures aim to enhance transparency and reduce the potential for tax evasion within the digital asset ecosystem.
The proposed rule results from the $1 trillion Infrastructure Investment and Jobs Act passed in 2021, which aimed to bolster tax reporting requirements for digital asset brokers.
The legislation mandated the IRS to define qualifying crypto brokers and provide forms and instructions for reporting. It was estimated that these new rules could generate approximately $28 billion in additional tax revenue over the next decade.
If implemented, the proposed rule would become effective for brokers starting from 2025, for the subsequent 2026 tax filing season. The Treasury Department and the IRS are currently soliciting feedback on the proposal until October 30 and have scheduled public hearings on November 7-8 to gather additional stakeholder input.
Overall, the Treasury Department views these proposed rules as part of a broader effort to address tax evasion risks associated with digital assets and ensure a level playing field for all taxpayers.
With the proposed framework open for public input, it remains to be seen how the final rules will shape the landscape of nascent industry taxation in the United States.
Featured image from iStock, chart from TradingView.com