The United States Department of Treasury recently introduced new tax reporting rules for the crypto industry. As per the new rules, American crypto exchanges like Coinbase and Kraken would have to report information regarding users’ purchases and trades to the Internal Revenue Service (IRS).
According to a recent report by Bloomberg, the new 282-page tax regulation document proposed by the Department of Treasury and the IRS was aimed at limiting tax evasion related to crypto transactions. The IRS claimed that the unpaid digital asset taxes were a considerable contributor to the deficit between taxes owed and collected, which exceeded $500 billion every year.
As per a separate press release from both departments, the new tax reporting rules would crack down on tax cheats while helping law-abiding taxpayers know how much they owe on the sale or exchange of digital assets. The proposal would remain open for public comment and feedback until October 30, 2023.
The new tax rules were met with considerable opposition from crypto businesses operating in the United States. Crypto stakeholders were particularly frustrated with the classification of decentralized crypto protocols as brokers. Historically, the crypto community had been of the view that decentralized crypto operations can’t be brought into compliance.
Speaking on the new tax reporting rules, Coinbase’s Vice President of Tax Lawrence Zlatkin stated:
The sheer magnitude of this data requirement would be hundreds of times more than the annual reported transactions of any major brokerage – and goes well beyond the scope of pursuing wealthy tax cheats. The practicality of the IRS’s requirement to report – let alone enforce – this incredible minutia of taxpayer data is questionable at best.
The new tax proposal was reportedly derived from the infrastructure bill of 2021. Brokers would have to report gross proceeds from crypto asset sales starting in 2026. Miles Fuller, head of government solutions at crypto tax software company TaxBit, stated that the proposal may position the industry for mainstream adoption.
