The U.S. Department of the Treasury, in collaboration with the Internal Revenue Service (IRS), has released a set of draft regulations targeting the reporting of digital asset transactions. This initiative is part of a larger agenda by the Biden-Harris Administration to close existing gaps in tax compliance and to address the perceived risks of tax evasion in the burgeoning digital asset sector. The public has been invited to comment on these proposed regulations until October 30, 2023, offering a window for stakeholders to voice their opinions.
Under the draft guidelines, brokers who facilitate the sale and exchange of digital assets would be obligated to report specific transactions. This would bring them in line with the existing reporting requirements that apply to brokers of traditional financial instruments like stocks and bonds. The Treasury Department argues that this alignment would simplify tax calculations for digital asset holders by requiring brokers to issue a new Form 1099-DA.
The proposed regulations also specify a timeline for implementation. If approved, brokers would be mandated to start reporting digital asset sales and exchanges beginning in 2026, which would cover transactions made in 2025. The nonpartisan Joint Committee on Taxation has estimated that the digital asset provisions in the Infrastructure Investment and Jobs Act (IIJA), under which these regulations fall, could potentially generate close to $28 billion in tax revenue over the next ten years.
Public hearings have been scheduled for November 7 and 8, 2023, to discuss these draft regulations. The Treasury Department and the IRS have expressed their willingness to consider public comments from affected industries, taxpayers, and other interested parties before finalizing any rules.
Here are a few reactions from the crypto community: