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The IRS and Treasury have outlined proposed rules that would require brokers, exchanges, and potentially decentralized exchanges to enhance their tax reporting in the coming years.
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The U.S. Treasury Department has introduced proposed rules aiming to enhance tax reporting within the crypto industry. These rules would require brokers and exchanges to report specific crypto sales, spanning from bitcoin to NFTs, with the goal of reducing the tax gap and ensuring equitable tax compliance.
The proposed regulations, released alongside the Internal Revenue Service, are part of the Infrastructure Investment and Jobs Act from 2021, incorporating crypto-related provisions to bolster reporting by brokers regarding customers’ crypto activities.
The new rules intend to treat crypto brokers similarly to traditional brokers handling assets like stocks and bonds. Presently, taxpayers are liable for taxes on gains and can deduct losses on digital assets when they are sold. However, calculating these gains has proven challenging. The proposed changes would entail brokers providing a new Form 1099-DA to assist taxpayers in determining their tax obligations.
The Treasury Department stated that these regulations aim to align tax reporting for digital assets with other types of assets, avoiding preferential treatment among asset categories.
Who will be impacted by these changes?
The proposal includes brokers covering platforms, payment processors, and specific hosted wallets. Decentralized exchanges are also part of the plan, required to collect customer data and report sales details.
The Treasury Department’s decision to involve decentralized exchanges comes from the belief that reasons for reporting digital asset dispositions are independent of a platform’s transaction method.
Addressing privacy concerns, the Treasury and IRS are seeking alternative suggestions and industry comments. Brokers would start reporting digital asset sales and exchanges in 2025 under the proposal, aiming to generate about $28 billion over a decade.
Public comments are needed by October 30, with hearings planned by the Treasury Department in November.
Kristin Smith, CEO of the Blockchain Association, stressed the importance of paying taxes for crypto transactions. She said that if done correctly, these rules could provide crucial guidance for everyday crypto users to follow tax laws. However, she highlighted the distinction between the crypto ecosystem and traditional assets, advocating for rules suited to the unique nature of crypto.
The DeFi Education Fund criticized the proposed rules as “confusing, self-refuting, and misguided.” The CEO, Miller Whitehouse-Levine, pointed out that the approach tries to apply regulatory frameworks where intermediaries might not exist, posing challenges for compliance and tax filing. The Fund plans to provide detailed comments explaining why the proposal should be reconsidered.
Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.
