Digital asset brokerage companies might be required to report new data on sales and exchanges by users on their platforms. Such information will be reported to the Internal Revenue Service (IRS) according to a proposal tabled by the US Treasury Department.
US Treasury proposes new guidelines on crypto tax reporting
The guidelines announced by the Treasury are part of a larger effort by Congress and other regulatory agencies to crack down on the lack of tax compliance in reporting crypto transactions. The proposal comes as US legislature and agencies crack down on the cryptocurrency industry.
The guidelines proposed a new tax reporting form known as Form 1099-DA. Taxpayers can use the form to determine whether they owe taxes. It will also help crypto users to avoid making complex decisions to determine gains.
The proposal will also see crypto brokers subject to the same information reporting requirements as traditional brokers. The reporting rules will see digital assets subject to the same requirements as other financial assets, such as bonds and stocks.
The proposal has designed a brokerage platform as a centralized or decentralized digital asset trading platform, online wallets, and crypto payment processors. The guidelines will also cover crypto assets and non-fungible tokens (NFTs).
Brokers must send the forms to the IRS and digital asset holders to enable tax reporting. The Treasury opined that the proposed rules were part of an effort to close the tax gap and address the issue of tax evasion in the digital asset industry. Therefore, the proposals will ensure all players in the financial sector are subject to the same rules.
The US has been advocating for tax compliance in the digital asset sector. The IRS mandates that crypto users make a report on their returns from activities such as trading cryptocurrencies regardless of whether such transactions trigger gains. Crypto users must calculate the tax amount to be paid themselves.
The US Treasury Department and the IRS will accept feedback on this proposal until October 30. The agencies will also hold public hearings between November 7 and November 8.
Proposals meet mixed reactions
The proposals have met mixed reactions from US legislatures. Democratic senator Elizabeth Warren sent a letter to the Treasury earlier this month seeking swift implementation of the rules. In the letter, the senator said the current lack of regulation allowed tax evaders and crypto intermediaries to avoid compliance.
The House Financial Services Committee Chairman, Patrick McHenry, has released a statement opposing these proposals. He said the proposal was another attempt by the Biden administration to attack the digital asset sector.
“The Biden administration must end its effort to kill the digital asset ecosystem in the US and work with Congress to deliver clear rules of the road for this industry finally. I look forward to advancing my bipartisan solution – the Keep Innovation in America Act – to fix these misguided reporting requirements, protect the privacy of market participants, and ensure the digital asset ecosystem can flourish here in the US,” McHenry said.