US Treasury Unveils Crypto Tax Reporting Guidelines
Crypto Exchanges and Investors to Report Holdings
According to the document, cryptocurrency brokers would be expected to report new information on users’ sales as well as the transfer of digital assets to the Internal Revenue Service (IRS).
These brokers include exchanges, payment processors, and certain hosted wallets and they will be required to report earnings on digital assets including Bitcoin (BTC), Ethereum (ETH), and even Non-Fungible Tokens (NFTs).
Decentralized exchanges are not particularly left out as they will also need to retrieve users’ information and conduct the other necessary reporting.
This proposed rule is part of the 2021 Infrastructure Investment and Jobs Act that included crypto language to increase reporting made by brokers on customers’ crypto activity. The Treasury Department claims to be doing this so that “everyone plays by the same set of rules.”
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Must ReadPrecisely, crypto brokers will be expected to provide financial reports for tax purposes just like brokers for traditional assets like stocks and bonds.
IRS Challenges Unlawful Crypto Tax Benefits
Meanwhile, U.S. prosecutors and the IRS already feel like some crypto whales are enjoying unlawful tax benefits from other regions like Puerto Rico. This observation has likely contributed to the introduction of the new rule.
There is already an existing system where taxpayers owe taxes on gains and then remove their losses on digital assets. However, the Treasury Department pointed out that this system is not sufficient as it is difficult for these taxpayers to calculate gains.
Therefore, under this new rule, crypto brokers are expected to provide their customers (taxpayers) with a new Form 1099-DA which will help them understand if they currently owe tax according to the crypto tax reporting guidelines.
“This decision was made because the reasons for requiring information reporting on dispositions of digital assets do not depend on the manner by which a business operating a platform effects customers’ transactions,” the U.S. Treasury Department explained.
Noteworthy, this proposed rule is not effective until 2025 after which crypto brokers would be expected to bring in $28 billion into the agency in the course of 20 years.
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