According to a recent report by the Wall Street Journal, the Biden Administration has unveiled its much-anticipated new tax reporting rules for digital assets. While some decentralized exchanges (DEXs) find themselves under increased scrutiny, cryptocurrency miners can breathe a sigh of relief.
US Treasury Defines ‘Broker’ For Crypto Industry
Under a newly proposed rule from the U.S. Treasury Department, crypto brokers—including exchanges and payment processors—would be required to disclose additional user transaction data to the Internal Revenue Service (IRS). This initiative is a component of a wider effort by both Congress and regulatory agencies to clamp down on crypto users who might be evading tax obligations.
The U.S. Treasury Department has clarified its “broker” definition for the crypto industry, outlining tax reporting duties for various crypto entities. A new tax form, 1099-DA, has been introduced for this purpose. The guidance, part of a 300-page proposal, states that miners are exempt, but some decentralized finance platforms must adhere to the tax rules.
The proposal defines “broker” to include centralized and decentralized crypto trading platforms, payment processors, and certain digital wallets. It covers cryptocurrencies such as Bitcoin and Ethereum, as well as NFTs.
Major crypto exchanges and brokers have been given more time than initially expected to adapt to new tax-reporting rules under the 2021 Infrastructure Investment and Jobs Act. The proposal is still under review, with public comments accepted until October 30 and hearings scheduled for November 7-8.
Decentralized exchanges may face challenges due to reporting requirements. Final rules will be set after months of industry lobbying, aiming for implementation by the 2025 tax year. This offers the industry some leeway, as many had expected changes as early as next year.
The Treasury said, “This 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.”
These New Rules Could Bring $28 Billion
The proposal expands reporting obligations to digital asset transactions exceeding $10,000 in cash. When the bill was enacted, it was projected to generate nearly $28 billion in revenue over ten years.
The IRS confirmed to the industry last year that existing laws and regulations would remain in effect until the new tax guidelines are finalized. Despite the recent release of the proposal, the process is far from being completed.
Regarding the law’s stipulations, several complex issues remain to be addressed. These include how companies handle transactions involving private wallets that are not visible to the business, and how broker records will account for activities on fully decentralized platforms.
The updated tax rules signal that the U.S. government is giving significant attention to the crypto sector, as evidenced by legal actions against major exchanges like Binance and Coinbase, as well as legislative measures concerning crypto stablecoins.