US reveals new rules for crypto tax reporting

This rule forms part of a broader initiative by Congress and regulatory bodies to tighten regulations on crypto users potentially evading tax payments. A new tax reporting form labelled Form 1099-DA is intended to aid taxpayers in determining their tax liabilities, facilitating crypto users in avoiding intricate calculations to assess their gains, as stated by the Treasury Department. 

The requirements stem from the USD 1 trillion 2021 Infrastructure Investment and Jobs Act, which incorporated a provision aimed at enhancing tax reporting obligations for brokers dealing with digital assets. The IRS was tasked with outlining the criteria for identifying crypto brokers and providing corresponding reporting forms and instructions. Furthermore, the rule extended reporting prerequisites to digital assets for specific cash transactions exceeding USD 10,000.

Upon the bill's passing, projections estimated that these new regulations could generate around USD 28 billion in revenue over a ten-year span according to Reuters. The Treasury has proposed that these regulations take effect for brokers in 2025, in preparation for the 2026 tax filing period.

Reactions from the crypto space 

Reactions from the crypto industry to the proposal were varied. Representatives from the Blockchain Association noted that if implemented correctly, the new rules have the potential to provide everyday crypto users with the necessary information to accurately comply with tax laws. 

However, officials from the DeFi Education Fund, a lobbying group focusing on decentralised finance, criticised the proposed approach, stating it would not simplify tax filing or enhance tax adherence. They described the proposal from the IRS as confusing, self-refuting, and misguided. 

Currently, the IRS mandates crypto users to report a range of digital asset activities, including cryptocurrency trading, regardless of whether the transactions resulted in gains. Users are responsible for calculating this themselves, as the platforms handling digital asset trades do not provide the IRS with this information. 

In a letter earlier this month, several Democratic senators, including Elizabeth Warren, urged the Treasury to expedite the implementation of these rules, contending that without such action, tax evaders and crypto intermediaries would continue to exploit the system. Feedback on the proposal will be accepted by the Treasury Department and the IRS until 30 October 2023. Public hearings on the proposal are also scheduled for 7 and 8 November. 

Additionally, the rule would subject digital asset brokers to the same information reporting standards as brokers handling other financial instruments such as bonds and stocks according to the Treasury. Under this proposal, the term 'broker' would encompass both centralised and decentralised digital asset trading platforms, crypto payment processors, and specific online wallets storing digital assets. The rule would apply to cryptocurrencies such as bitcoin and ether, along with non-fungible tokens.