In a recent letter, US Senators, led by Elizabeth Warren, have called for prompt action to implement new tax reporting requirements for digital asset brokers. The need for these requirements stems from the Infrastructure Investment and Jobs Act (IIJA) enacted nearly two years ago, which aimed to address the estimated $50 billion crypto tax gap and streamline the process of reporting crypto income. However, concerns have been raised about the slow progress in implementing the rules, highlighting the urgency for swift action.
The Senators’ letter directs attention to the fact that Congress instructed the Treasury Department and the Internal Revenue Service (IRS) to finalize the new rules by January 1, 2024. However, with less than six months remaining until the deadline, the proposed rules have yet to be published. This delay raises concerns about the agencies’ ability to meet the congressionally-mandated deadlines for implementing final rules.
The IIJA was initially enacted when the US faced a significant tax gap of $1 trillion. The emerging cryptocurrency sector, valued at $2 trillion and poorly regulated at the time, contributed to this issue. The then-IRS commissioner, Charles Rettig, acknowledged the impact of the cryptocurrency sector on the tax gap.
A May 2021 Treasury report found that the anonymity associated with crypto transactions poses a significant detection problem, enabling tax evasion and illegal activities. The Senators’ demand for the swift implementation of robust tax reporting rules gains further significance in light of these findings. The new rules introduced by the IIJA mandate that third-party brokers facilitating crypto transactions report information related to users’ crypto sales, gains or losses, and certain large transactions to the IRS and the users themselves.
The Senators argue that these new rules aim to simplify the tax filing process for crypto users and enable the IRS to pursue large-scale tax evasion more effectively. Additionally, the projected impact of these rules is substantial, with an estimated $1.5 billion in tax revenue expected in 2024 alone and nearly $28 billion over the next eight years. The Senators highlight the potential loss of $1.5 billion in tax revenue in 2024 if the rules are not implemented by December 31, 2023.
The call for swift action on tax reporting requirements for digital asset brokers comes in the wake of Wall Street banks supporting Elizabeth Warren’s Digital Asset Anti-Money Laundering Act. This act aims to impose bank-like standards and requirements on crypto businesses. These recent developments indicate a growing emphasis on traceability, oversight, and visibility within the regulatory landscape of the US crypto industry.
The urgency for swift action on implementing tax reporting requirements for digital asset brokers cannot be overstated. The delay in publishing proposed rules raises concerns about the agencies’ ability to meet congressionally-mandated deadlines. The potential loss of significant tax revenue further emphasizes the need for immediate action. The evolving regulatory landscape, with its focus on traceability and oversight, highlights the increasing stringency within the US crypto industry. It is imperative that the Treasury Department and the IRS prioritize the implementation of robust tax reporting rules to address the crypto tax gap effectively.