Two U.S. Senators, Elizabeth Warren and Angus S. King, Jr., have stepped up their efforts to prompt the U.S. Department of the Treasury and the Internal Revenue Service (IRS) to expedite the implementation of proposed tax reporting rules for cryptocurrency brokers. In a joint letter to the regulators, the senators expressed their concerns regarding the two-year delay in enforcing the rules, which could potentially result in billions of dollars in uncollected tax revenue for the federal government. It has been estimated that the IRS is losing approximately $50 billion per year as of 2022 due to the lack of understanding or deliberate evasion of tax obligations by crypto traders.
The Treasury Department and the IRS have introduced proposed regulations aiming to regulate and streamline the complex realm of cryptocurrency trading and tax reporting. Senators Warren and King commended certain aspects of the proposed rules, particularly the definitions of “brokers” and “digital assets.” According to the regulations, brokers are classified as any party that facilitates crypto sales while possessing knowledge of both the seller’s identity and the transaction’s nature. Moreover, the term “digital asset” refers to a digital representation of value recorded on a secure ledger based on advanced cryptographic technology.
Despite their support for the substance of the proposed regulations, the senators strongly objected to the scheduled effective date of 2026. Such a delay, they argue, contradicts the directive set forth by the 2021 Infrastructure Investment and Jobs Act, which mandates new crypto broker reporting requirements on all tax returns filed from 2024 onwards. The Joint Committee on Taxation has projected that these requirements could yield significant tax revenue in their initial years, making the delay particularly concerning. In response, the senators assert, “The time to act is now.”
Warren and King emphasized that further delays in implementing the tax reporting rules could perpetuate an environment where crypto lobbyists are able to undermine the government’s efforts to regulate this burgeoning and largely unmonitored sector. Thus, they call for a swift implementation of the proposed rule and have requested the agencies to provide them with updates on their progress by October 24, 2023.
The urgency to enforce tax reporting regulations for cryptocurrency brokers is a pressing matter that Senators Warren and King have brought to the forefront. With billions of dollars in potential tax revenue at stake and the risk of further evasion or regulatory resistance, it is imperative for the government to take swift action. By implementing these rules and ensuring compliance, the authorities can contribute to a more transparent and accountable cryptocurrency industry while safeguarding public coffers.