IRS Issues New Tax Reporting Rules for Crypto Brokers
- The IRS believes the proposed rules will help taxpayers determine if they owe taxes.
- The new rules have received mixed reactions from the crypto community.
The US Internal Revenue Service (IRS), which oversees taxes in the country, has proposed new rules to govern brokers’ sales and exchanges of digital assets. The Treasury Department stated on Friday that crypto exchanges and payment platforms will have to report information on their users’ sales and exchanges of digital assets to the IRS.
The IRS proposed a new tax reporting form known as Form 1099-DA, which it said would “help taxpayers determine if they owe taxes and […] avoid having to make complicated calculations or pay for digital asset tax preparation services in order to file their tax returns.”
The proposed policy is part of ongoing efforts by the US Congress and regulatory bodies to fish out crypto users who could be violating their tax obligations. In addition, the new rule will subject digital asset brokers to the same reporting rules used for bond and stock brokers.
The Treasury Department said in a statement,
Under current law, taxpayers owe tax on gains and may be entitled to deduct losses on digital assets when sold, but for many taxpayers, it is difficult and costly to calculate their gains.
Furthermore, the proposed rule classifies crypto payment processors, online wallets where users store their digital assets, and centralized and decentralized crypto platforms as “brokers.
In addition, the new rule is in response to the $1 trillion 2021 Infrastructure Investment and Jobs Act, which, among many things, seeks to increase tax reporting requirements for digital asset brokers.
The Treasury Department expects the new rule to be implemented for brokers in 2025 for the 2026 tax filing season. It noted that the rule 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.”
Interestingly, the IRS proposal received a range of responses from the crypto industry. For example, Blockchain Association CEO Kristin Smith noted that, if properly implemented, the rule “could help provide everyday crypto users with the necessary information to accurately comply with tax laws.”
Smith said in a statement,
It’s important to remember that the crypto ecosystem is very different from that of traditional assets, so the rules must be tailored accordingly and not capture ecosystem participants that don’t have a pathway to compliance.
However, DeFi Education Fund CEO Miller Whitehouse-Levine believes the proposal will have little impact on improving compliance with taxes and filing taxes. Levine noted that the proposal from the IRS is “confusing, self-refuting, and misguided. It attempts to apply regulatory frameworks predicated on the existence of intermediaries where they don’t exist.”
The IRS and the Treasury Department are accepting public feedback on the proposed policy until October 30th.
Lawrence has covered some exciting stories in his career as a journalist, he finds blockchain-related stories very intriguing. He believes Web3 will change the world and wants everyone to be a part of it.
