The new crypto tax proposal from the US Treasury and IRS regulates the sale and exchange of digital assets by brokers, aiming “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.”
On Aug. 25, the U.S. Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) released proposed regulations on taxing the sale and exchange of digital assets by brokers, clarifying the term of ‘broker’ itself and exempting crypto miners from the tax requirements.
The move is part of the Biden-Harris Administration’s implementation of the bipartisan Infrastructure Investment and Jobs Act (IIJA), as well as part of a broader Treasury’s efforts to address the tax evasion risks posed by digital assets.
A nearly 300-page proposed regulation explains which entities or individuals should be considered ‘brokers’ when it comes to the crypto industry. The definition entails centralized crypto exchanges, payment processors, some hosted wallet providers, some decentralized exchanges and people or entities that redeem crypto tokens they created.
Such brokers for digital assets shall be subject to the same information reporting rules as brokers for securities and other financial instruments. However, they will get a separate reporting form – the 1099-DA – specifically dedicated to digital assets. According to the proposal, the entities now officially considered ‘brokers’ will have a few years to adjust their activities to the new tax-reporting system.
The new broker reporting rules would apply not only to cryptocurrencies but to all types of digital assets, including NFTs. Besides the requirements for digital asset brokers, the rule extends reporting requirements for cash transactions exceeding $10,000 to digital assets.
The proposal is now open to public comments. They will be accepted by October 30. The Treasury will also listen to participant objections and ideas in a set of public hearings on November 7 and 8.
Judging from the immediate crypto community response, the agency will receive a number of critical comments. X (former Twitter) users have already pointed out a few provisions of the new proposal that they consider inadequate.
For instance, Miller Whitehouse-Levine, the CEO of the decentralized finance (DeFi) lobbying group, noted that the broker definition is “overbroad,” allowing it to capture all sorts of entities including self-hosted, or unhosted, wallets where intermediaries do not exist.
Among the representatives of the government, opinions are divided. Thus, House Financial Services Committee Chairman Patrick McHenry, a North Carolina Republican, expressed his approval of tax exemptions and prolonged compliance period, yet said the proposal “fails on numerous other counts.” He called the regulation “another front in the Biden Administration’s ongoing attack on the digital asset ecosystem.”
At the same time, Senator Elizabeth Warren, a Democrat from Massachusetts, along with other senators have earlier urged the Treasury to meet their congressionally-mandated deadlines for implementation of a final and ‘strong’ crypto taxation rule. In their opinion, any delays only facilitate massive tax evasion with the help of digital assets. Instead of doing the work yourself, it is a great option to invest in financial advice from ASR for a better understanding of new rules and regulations.
Earlier, the IRS came up with taxation rules for those getting income from crypto staking.