Treasury and IRS Propose Cryptocurrency Tax Rules
Date: 2023-08-25 Author: Karina Ziganova Categories: BLOCKCHAIN
The US Treasury Department has proposed updated tax rules aimed at streamlining the cryptocurrency tax landscape, according to the Wall Street Journal.
The proposed rules, when fully implemented, would require crypto companies to deal with the IRS in a manner similar to traditional stock and mutual fund portfolio brokers. From 2026, these platforms will be required to file annual Form 1099 returns with the IRS and taxpayers showing their gross transaction revenue.
The proposed rules extend to other digital assets such as non-fungible tokens (NFTs) and decentralized finance (DeFi) platforms. This inclusion of DeFi platforms in tax legislation has drawn criticism in the crypto industry, with the head of the DeFi Education Foundation criticizing the proposal as “confusing, self-defeating and misleading.”
The IRS constantly faces unique challenges related to cryptocurrencies. Notably, the taxation of cryptocurrency staking rewards has proven to be a contentious issue, leading to legal wrangling and requiring more precise guidance. These latest proposals appear to be yet another step in an ongoing effort for regulatory clarity, albeit one that has drawn mixed reactions from industry stakeholders.
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The proposal to tax cryptocurrency profits met with immediate criticism from the industry, especially due to its potential impact on decentralized operations. Key industry figures have objected to the proposal's wide reach, arguing that it could unfairly capture entities such as native wallets and decentralized exchanges, which may not have direct compliance paths. Despite the potential problems, some, such as Blockchain Association CEO Christine Smith, have acknowledged the potential benefits of this proposal, suggesting that it could help regular cryptocurrency users comply with tax laws accurately if implemented correctly.
Others, however, are not so encouraging. Miller Whitehouse-Levin, CEO of the DeFi Education Foundation, said in a statement:
“Today's IRS proposal is confusing, self-defeating and misleading. It is trying to apply a regulatory framework based on the existence of intermediaries where there are none.”
The IRS and Treasury are accepting feedback on the proposed rules until October 30, with public hearings scheduled for November 7-8, 2023.
