The Biden administration unveils new tax reporting rules for cryptocurrency

Bitcoins are shown in this illustration

Bitcoins are seen in this illustrative photo taken on September 27, 2017. REUTERS/Dado Ruvik/Illustration/File Photo Obtain licensing rights

Aug. 25 (Reuters) – Cryptocurrency brokers, including exchanges and payment processors, will have to report new information about user sales and exchanges of digital assets to the Internal Revenue Service (IRS) under a proposed rule by the US Treasury Department published on Friday.

The rule is part of a broader campaign by Congress and regulatory authorities to crack down on cryptocurrency users who may fail to pay their taxes.

The Treasury Department said the proposed new tax reporting form called Form 1099-DA is intended to help taxpayers determine whether they owe taxes, and will help cryptocurrency users avoid having to perform complex calculations to determine their earnings.

The Treasury said it would also subject digital asset brokers to the same information reporting rules as brokers for other financial instruments, such as bonds and stocks.

Under the proposal, the definition of “intermediary” would include both centralized and decentralized digital asset trading platforms, cryptocurrency payment processors and some online wallets where users store digital assets. The rule will cover cryptocurrencies, such as bitcoin and ether, as well as non-fungible tokens.

Brokers will need to send the forms to both the IRS and digital asset holders to help with their tax preparation.

The new requirements stem from the $1 trillion Infrastructure and Jobs Investment Act of 2021, which included a provision intended to increase tax reporting requirements for digital asset brokers. It has instructed the IRS to identify companies that qualify as cryptocurrency brokers and to provide reporting forms and instructions.

It also expanded reporting requirements for some monetary transactions over $10,000 to include digital assets.

At the time the bill was passed, it was estimated that the new rules could bring in nearly $28 billion over a decade.

The Treasury Department has suggested that the rules will be effective for brokers in 2025 for the 2026 tax filing season.

“This is part of a broader effort at the Treasury Department to close the tax gap, address the risks of tax evasion posed by digital assets, and help ensure that everyone plays by the same set of rules,” the Treasury said in a statement.

The cryptocurrency industry has had mixed reactions to the proposal. If properly implemented, the new rules “could help provide everyday cryptocurrency users with the information needed to accurately comply with tax laws,” Kristen Smith, CEO of the Blockchain Association, said in a statement.

Miller Whitehouse Levin, CEO of the DeFi Education Fund, a lobby group focused on decentralized finance, said the proposed approach would neither make filing taxes easier nor improve tax compliance.

“Today’s proposal from the IRS is confusing, self-refuting, and misleading. It attempts to implement intermediary regulatory frameworks where there are none,” he said in a statement.

The IRS currently requires cryptocurrency users to report their tax returns on many digital asset activities, including cryptocurrency trading, regardless of whether the transactions resulted in gains. Users are required to make this calculation themselves, and the platforms on which digital assets are traded do not provide this information to the IRS.

Several Democratic senators, including Elizabeth Warren, urged the Treasury Department In a letter sent earlier this month to implement the rules quickly, arguing that otherwise tax evaders and cryptocurrency brokers “will continue to game the system”.

The Treasury Department and the IRS are accepting comments on the proposal through Oct. 30. They will also hold public hearings on the proposal on November 7-8.

Reporting by Hannah Lang in Washington; Editing by Debbie Babbington and Michelle Price

Our standards: Thomson Reuters Principles of Trust.

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Hannah Lang covers fintech and cryptocurrency, including the companies driving the industry and the policy developments governing the sector. Hannah previously worked at American Banker where she covered banking regulation and the Federal Reserve. Graduated from the University of Maryland, College Park, and lives in Washington, DC.

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