Bitcoin, the world’s largest cryptocurrency, has been stealthily rising in 2023.
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Cryptocurrency brokers, including exchanges and payment processors, would must report recent information on users’ sales and exchanges of digital assets to the Internal Revenue Service (IRS) under a proposed U.S. Treasury Department rule published on Friday.
The rule is an element of a broader push by Congress and regulatory authorities to crack down on crypto users who could also be failing to pay their taxes.
A proposed recent tax reporting form called Form 1099-DA is supposed to assist taxpayers determine in the event that they owe taxes, and would help crypto users avoid having to make complicated calculations to find out their gains, the Treasury Department said.
It could also subject digital asset brokers to the identical information reporting rules as brokers for other financial instruments, comparable to bonds and stocks, Treasury said.
Under the proposal, the definition of a “broker” would come with each centralized and decentralized digital asset trading platforms, crypto payment processors and certain online wallets where users store digital assets. The rule would cover cryptocurrencies, like bitcoin and ether, in addition to non-fungible tokens.
Brokers would want to send the forms to each the IRS and digital asset holders to help with their tax preparation.
The brand new requirements stem from the $1 trillion 2021 Infrastructure Investment and Jobs Act, which included a provision that aimed to extend tax reporting requirements for digital asset brokers. It instructed the IRS to define what firms qualified as crypto brokers and supply forms and directions for reporting.
It also prolonged reporting requirements for certain money transactions of greater than $10,000 to digital assets.
On the time the bill was passed, it was estimated that the brand new rules could herald near $28 billion over a decade.
The Treasury proposed that the foundations could be effective for brokers in 2025 for the 2026 tax filing season.
“This is an element of a broader effort at Treasury to shut the tax gap, address the tax evasion risks posed by digital assets, and help be sure that everyone plays by the identical algorithm,” the Treasury said in a press release.
The IRS currently requires crypto users to report on their tax returns many digital asset activities, including trading cryptocurrencies, no matter whether the transactions resulted in a gain. Users are required to make that calculation themselves, and the platforms on which digital assets trade don’t give the IRS that information.
Several Democratic senators, including Elizabeth Warren, urged the Treasury in a letter sent earlier this month to quickly implement the foundations, arguing that otherwise tax evaders and crypto intermediaries “will proceed to game the system.”
The Treasury Department and the IRS are accepting feedback on the proposal until Oct. 30. They may even hold public hearings on the proposal on Nov. 7-8.
