Game-Changing Crypto Tax Plan: U.S. Treasury Aims to Monitor Every Digital Dollar!

 Game-Changing Crypto Tax Plan: U.S. Treasury Aims to Monitor Every Digital Dollar!

Game-Changing Crypto Tax Plan: U.S.(Image-Getty)

The U.S. Treasury Department has unveiled a proposed regulation that aims to enhance tax compliance within the cryptocurrency market. As part of a wider effort to address potential tax evasion issues, the rule would require cryptocurrency brokers, which encompass exchanges and payment processors, to furnish the Internal Revenue Service (IRS) with updated details about users' digital asset sales and exchanges. This initiative has been prompted by both congressional and regulatory pressures to ensure that cryptocurrency users fulfill their tax obligations.

Under the proposal, a new tax reporting form, labeled Form 1099-DA, would be introduced. This form is designed to simplify the determination of tax liabilities for taxpayers and alleviate the complexity of calculating gains for cryptocurrency users. Furthermore, it would extend the same information reporting standards applied to brokers handling conventional financial instruments like stocks and bonds to digital asset brokers.

The definition of a "broker" as outlined in the proposed rule would encompass a broad spectrum, including both centralized and decentralized digital asset trading platforms, crypto payment processors, and specific online wallets where digital assets are stored. The rule would encompass various types of digital assets, including established cryptocurrencies like bitcoin and ether, as well as non-fungible tokens (NFTs).

According to the proposition, brokers would be mandated to furnish Form 1099-DA not only to the IRS but also to digital asset holders. This would assist holders in their tax preparation endeavors.

The impetus for these new requirements can be traced back to the 2021 Infrastructure Investment and Jobs Act, which sought to amplify tax reporting obligations for digital asset brokers. The legislation directed the IRS to define qualifying criteria for crypto brokers and furnish the necessary forms and instructions for reporting. Additionally, the legislation expanded the purview of reporting requirements to encompass significant cash transactions exceeding $10,000 involving digital assets.

Projections at the time of the legislation's passage estimated that these new regulations could generate approximately $28 billion in revenue over a decade. The Treasury Department anticipates that the new regulations would come into effect for brokers by 2025, in time for the 2026 tax filing season.

In an official statement, the Treasury Department conveyed that these measures align with its broader goal of reducing the tax gap and mitigating the risks associated with tax evasion in the realm of digital assets. Responses from the cryptocurrency industry have been varied. While some view the potential benefits of enhanced clarity for everyday crypto users in adhering to tax laws, others find fault with the approach, asserting that it neither simplifies tax filing nor enhances tax compliance.

Currently, the IRS necessitates that crypto users report various digital asset activities on their tax returns, even if these transactions do not result in a financial gain. This calculation is left to the users themselves, as trading platforms lack the mechanism to share this information directly with the IRS.

Certain Democratic senators, including Elizabeth Warren, have called on the Treasury to expeditiously implement these rules. They argue that without prompt action, both tax evaders and cryptocurrency intermediaries may exploit the existing system. The Treasury Department and the IRS are now accepting feedback on the proposed regulation until October 30, with plans to conduct public hearings on the matter on November 7-8.