The US Treasury Department, in collaboration with the Internal Revenue Service (IRS), has released proposed regulations that would require US-based cryptocurrency exchanges to disclose detailed information on their clients’ transactions starting in 2026. This move aims to curb crypto-related tax evasion and bring more transparency into customer trades, aligning with the government’s efforts to crack down on tax cheats.
Stricter reporting requirements for Crypto brokers
Under the proposed rules, platforms that facilitate the buying and selling of digital assets, also known as crypto brokers, would have to track and report key information, such as customers’ capital gains and losses. This would be similar to existing requirements for stock and bond brokers. The regulations would require brokers to report gross proceeds for sales of digital assets on or after January 1, 2025, and adjusted basis reporting for sales on or after January 1, 2026. These requirements would apply to both centralized and decentralized exchanges.
The IRS will also create Form 1099-DA for brokers to send to taxpayers to determine what they owe. The proposal is part of a broader effort to rein in the digital-asset market, especially after the collapse of crypto exchange FTX and other high-profile crypto firms last year, which caused cryptocurrency prices to drop.
Exemptions for miners and validators
Interestingly, the proposed rules make clear that companies that validate cryptocurrency transactions through mining or staking are not subject to the reporting requirements. This exemption has received support from lawmakers on both sides of the aisle and aligns with the Treasury’s previous signals.
The Treasury’s definition of digital asset brokers includes trading platforms, digital asset payment processors, certain digital asset-hosted wallet providers, and persons who regularly offer to redeem digital assets. However, individuals who only engage in distributed ledger validation, including miners and stakers, are exempt from broker requirements.
The proposed regulations aim to limit the occurrence of tax evasion in the crypto industry and ensure that crypto investors and businesses do not benefit unfairly. The proposed regulations will be open for public comments until October 30, 2023. Furthermore, a public hearing has been scheduled for November 7, 2023.
In conclusion, the US Treasury’s proposed regulations mark one of the steps in the government’s ongoing efforts to regulate the cryptocurrency market and ensure tax compliance. Including detailed reporting requirements for crypto brokers and exemptions for miners and validators reflects a nuanced approach to regulation. The upcoming public hearing and comment period will likely provide further insights into the industry’s response.
Source: https://www.cryptopolitan.com/us-government-unveils-new-rules-for-crypto-exchanges/