May 29, 2024
Latest Cryptocurrency News

Biden Administration Reveals New Cryptocurrency Tax Reporting Regulations

In a recent development, cryptocurrency brokers, encompassing exchanges and payment processors, may soon be obliged to furnish the Internal Revenue Service (IRS) with fresh data regarding users’ digital asset sales and exchanges, as per a proposed rule from the U.S. Treasury Department unveiled on Friday.

This rule is a component of a broader initiative by Congress and regulatory bodies to clamp down on cryptocurrency users who might be neglecting their tax obligations.

The proposed regulation introduces a novel tax reporting form, designated as Form 1099-DA, which aims to assist taxpayers in determining their tax liabilities. It would streamline the process for cryptocurrency users, sparing them from having to navigate intricate calculations to ascertain their gains, as stated by the Treasury Department.

Moreover, the rule would subject digital asset brokers to the same information reporting standards as brokers for other financial instruments like stocks and bonds.

According to the proposal, the definition of a “broker” would encompass both centralized and decentralized digital asset trading platforms, cryptocurrency payment processors, and select online wallets employed by users to store digital assets. This would encompass various cryptocurrencies, including bitcoin and ether, along with non-fungible tokens.

Under the proposed regulation, brokers would be required to transmit these forms to both the IRS and the digital asset holders to facilitate their tax preparation.

These new requirements originate from the $1 trillion 2021 Infrastructure Investment and Jobs Act, which included provisions aimed at intensifying tax reporting requirements for digital asset brokers. The legislation directed the IRS to delineate which entities qualified as crypto brokers and provide the necessary forms and instructions for reporting. It also extended reporting obligations to encompass specific cash transactions exceeding $10,000 involving digital assets.

At the time of the bill’s passage, it was estimated that these new rules could generate nearly $28 billion in revenue over the course of a decade.

The Treasury Department has proposed that these regulations would be applicable to brokers starting in 2025 for the 2026 tax filing season.

The Treasury remarked, “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.”

Presently, the IRS mandates that cryptocurrency users report various digital asset activities on their tax returns, including cryptocurrency trading, irrespective of whether these transactions result in gains. Users are responsible for making these calculations themselves, and the platforms facilitating digital asset transactions do not furnish the IRS with this information.

Several Democratic senators, including Elizabeth Warren, recently urged the Treasury to expedite the implementation of these rules in a letter, contending that without such regulations, tax evaders and intermediaries in the cryptocurrency sector “will continue to game the system.”

The Treasury Department and the IRS are accepting public feedback on this proposal until October 30. Additionally, public hearings regarding the proposal are scheduled for November 7-8.

Image by brgfx on Freepik

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