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US Treasury Unveils New Crypto Tax Reporting Rules to Curb Evasion

The Biden administration has revealed new regulations regarding cryptocurrency tax reporting, aiming to combat tax evasion within the crypto sphere. Under these proposed rules published by the U.S. Treasury Department, cryptocurrency brokers, encompassing exchanges, payment processors, and various digital asset platforms, must furnish the Internal Revenue Service (IRS) with updated user transaction information. This initiative aligns with broader efforts by Congress and regulatory bodies to enforce tax compliance within the crypto community.

Simplified Tax Reporting and Broader Definitions

The central component of this proposal is the introduction of Form 1099-DA, a tax reporting form intended to simplify the determination of tax obligations for crypto users, thereby reducing the complexity associated with calculating gains. This measure is designed to place digital asset brokers under the same regulatory reporting requirements as traditional financial instruments, such as stocks and bonds. The expanded definition of a “broker” encompasses both centralized and decentralized digital asset trading platforms, crypto payment processors, and specific online wallets where users store digital assets, including cryptocurrencies like bitcoin and ether, as well as non-fungible tokens (NFTs).

Industry Response and Next Steps

As mandated by the 2021 Infrastructure Investment and Jobs Act, which aimed to enhance tax reporting for digital asset brokers, these rules are expected to generate substantial tax revenue, potentially amounting to nearly $28 billion over a decade. Brokers are slated to implement these rules by 2025 for the 2026 tax filing season.

The crypto industry’s response to these proposals has been mixed. Advocates believe that if implemented effectively, these rules can provide much-needed clarity to crypto users for tax compliance. However, critics argue that the IRS’s approach is misguided and that it attempts to apply traditional regulatory frameworks to decentralized systems where intermediaries may not exist. Currently, crypto users are required to report various digital asset activities on their tax returns, including trades, regardless of whether they resulted in gains. The burden of calculating these obligations falls on users, as digital asset trading platforms do not provide this information to the IRS.

Several Democratic senators, including Elizabeth Warren, have urged the Treasury to expedite the implementation of these rules, emphasizing the importance of preventing tax evasion and maintaining a level playing field. Public feedback on these proposals will be accepted until October 30, with public hearings scheduled for November 7-8 to further deliberate on these regulatory changes.

News Desk

Unlock News Desk, is a group of Blockchain and Crypto enthusiastic young people, working to keep Unlock readers up to date with the industry news. Connect with the team via email: info(@)unlock-bc.com

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