Cryptocurrency Brokers Under the Spotlight
Cryptocurrency brokers, including exchanges and payment processors, are set to report expanded details on users' digital asset transactions to the Internal Revenue Service (IRS). This development comes as the U.S. Treasury Department introduced a new proposal on Friday.
Targeting Tax Evasion in the Crypto Realm
This rule aligns with the broader initiative by Congress and regulators to pinpoint and address crypto users potentially bypassing their tax obligations.
Introducing the Form 1099-DA
The Treasury Department introduced Form 1099-DA, aiming to simplify tax calculations for crypto users. This form will offer clarity on tax dues, eliminating the need for intricate gain calculations. Additionally, the same reporting mandates will now apply to digital asset brokers as they do to traditional financial instrument brokers like those dealing in stocks and bonds.
Defining the 'Broker' in the Digital Age
The proposed rule expands the definition of a "broker" to encompass centralized and decentralized trading platforms, crypto payment processors, and specific online wallets. It covers a range of digital assets, from cryptocurrencies like bitcoin and ether to non-fungible tokens.
Dual Reporting for Transparency
Brokers will be mandated to forward the forms to the IRS and the respective digital asset holders, ensuring smoother tax preparations.
Origins of the New Requirements
These latest directives trace back to the $1 trillion 2021 Infrastructure Investment and Jobs Act. The Act incorporated a clause enhancing the tax reporting obligations for digital asset brokers. This legislation tasked the IRS with demarcating firms that fall under the 'crypto broker' category and supplying requisite reporting guidelines. Significantly, the Act broadened the reporting prerequisites for certain cash operations surpassing $10,000 to include digital assets. Revenue projections from these rules approximated a substantial $28 billion over ten years.
Implementation Timeline
The Treasury has set a tentative date, proposing the rules to become actionable for brokers in 2025, targeting the 2026 tax filing season.
Aiming for Tax Equity
In a statement, the Treasury outlined its overarching objective: to bridge the tax gap, address digital asset tax evasion risks, and foster a level playing field in tax rules.
Existing IRS Requirements
Currently, the IRS mandates crypto users to report various digital asset operations, including crypto trades. Users have to calculate and report these, even if no gain was achieved. Notably, these trading platforms don't presently provide such details to the IRS.
Political Push for Rapid Rule Execution
Key Democratic figures, such as Senator Elizabeth Warren, recently pressed the Treasury to expedite the rule implementation. Their concern is rooted in the belief that, without swift action, tax evaders and crypto intermediaries might exploit the system.
Open for Feedback and Discussions
The Treasury Department and the IRS welcome public feedback on this proposal until Oct. 30. Furthermore, public hearings to discuss the proposal are scheduled for Nov. 7-8.
