An official publication on the US Treasury Department website revealed that the revenue regulators’ Internal Revenue Service (IRS) plans on imposing new tax regulations. Under the new provision, the local crypto brokerage firms, exchanges, and payment companies will provide additional information regarding the sales of digital assets.
The IRS report demonstrated that the regulators plan to reduce tax cheats in the US. Recently, Congress had teamed up with public agencies to impose crypto tax regulations to expand government revenue streams.
IRS Set to Address Tax Cheats
According to the submission Form 1099-DA will be issued by the regulators outlining the new tax reporting procedure. The main aim of the IRS report is to enable taxpayers to evaluate their taxable income.
The report outlined the procedure cryptocurrency users will use to compute their taxes. The Treasury Department underlined that the expected tax computation approach aimed at reducing errors and complexities.
Consecutively, the crypto brokers must provide detailed reports on their brokerage services to other financial institutions, including bonds and stock information. The regulators described a crypto broker as an individual or entity that offers trading services to centralized and decentralized platforms, such as payment providers and online wallets.
The new tax legislation will focuses more on crypto assets, including Bitcoin, Ether, and nonfungible tokens (NFTs). Afterward, the brokers must share Form 1099-DA with the IRS and the crypto investor to gather relevant information for preparing tax reports.
IRS Proposes New Tax Reporting Approach
The new provision aligns with the Infrastructure Investment and Jobs Act (IIJA), which obliged the regulators to implement additional tax reporting requirements. Introducing the new tax requirements enabled the regulators to collect revenue of $1 trillion in 2021. Beyond this, the IIJA outlined the qualification of a crypto broker and provided an elaborate procedure for tax reporting.
At that time, the legislation increased the tax reporting requirements for transactions exceeding $ 10,000 on digital assets. The policymakers projected that implementing the IIJA will generate revenue of $28 million in 2030.
The Treasury Department stated that the new rule aims to bridge the potential gaps in the taxation system by minimizing crypto tax evasion. Additionally, the Treasury plans to implement the regulations in 2025 to allow the brokers to prepare the tax reports for 2026.
Treasury Department and IRS to Address Tax Complexities
However, before the implementation, the IRS and the Treasury opened the public comments to gather valuable insight from financial players. The revenue regulators have encouraged the public to provide valuable inputs before October 30. The proposal will be presented to the other legislative bodies during the November 7 public hearing.
News concerning implementing the new rules has created mixed thoughts among crypto investors. A statement issued by the chief executive of the Blockchain Association, Kristin Smith, revealed that the successful implementation of the legislation could improve compliance.
The CEO argued that the new rules will support information sharing between the regulators and the investor and will support compliance with the tax rules.
Commenting on this, the chief executive of DeFi Education Fund, Miller Whitehouse-Levine, shared a different opinion concerning the proposed tax regulations. The executive stated that the expected tax approach will neither improve tax reporting nor support tax compliance.
The CEO criticized the IRS proposal due to its complexity, which could lead to confusion and mislead key players in the crypto sector. Whitehouse-Levine stated that the new rules tend to introduce a comprehensive regulatory framework on intermediaries, which are non-existent.
Referring to the proposed regulations, the official added that the IRS will require the crypto investors to file their tax returns generated from crypto activities, including the buying and selling digital assets. Under the new tax regime, the investors must submit their tax reports to the regulators even if the transaction yielded zero profits.
Furthermore, the taxation approach to be implemented will necessitate the users to prepare their tax reports on their own. Primarily, the IRS seeks to uphold compliance with the crypto tax requirements.
In a letter co-authored by three Democratic senators, the IRS has been urged to expedite the implementation of the tax rules to stop the unlawful activities conducted by tax evaders and intermediaries in the crypto industry.