In a recent letter to Treasury Secretary Janet Yellen and IRS Commissioner Daniel Werfel, US Senators, led by Elizabeth Warren, have called for urgent action regarding the implementation of new tax reporting requirements for digital asset brokers. This demand is in reference to the bipartisan Infrastructure Investment and Jobs Act (IIJA), which was enacted nearly two years ago to address the estimated $50 billion crypto tax gap and streamline the reporting process for taxpayers.
Concerns Over Delayed Implementation
The Senators express their concerns about the delay in finalizing and publishing the proposed rules by the Treasury Department and the IRS. The Congress mandated the finalization of these rules by January 1, 2024. However, with less than six months remaining for the deadline, the agencies have yet to take appropriate action. Consequently, the Senators underscore the need for swift action to ensure robust tax reporting rules for cryptocurrency brokers.
The Significance of the Infrastructure Investment and Jobs Act
The IIJA was initially passed in response to the $1 trillion tax gap in the US, with the rapidly growing and loosely regulated cryptocurrency sector contributing to this issue. The anonymous nature of crypto transactions makes it difficult to detect tax evasion and other illegal activities. A May 2021 Treasury report confirmed the concerns regarding the anonymity associated with crypto transactions. It is in this context that the demand for swift implementation gains further significance.
The new rules introduced by the IIJA carry significant implications for the crypto ecosystem. Third-party brokers facilitating crypto transactions will be required to report information related to a user’s crypto sales, gains or losses, and certain large transactions to the IRS and the users themselves. This move aims to simplify the tax filing process for crypto users and enable the IRS to effectively pursue large-scale tax evasion. Moreover, these new rules are expected to generate approximately $1.5 billion in tax revenue in 2024 alone and close to $28 billion over the next eight years.
Urgency of Implementing the New Rules
The Senators’ letter emphasizes the urgency of implementing these rules and warns that failure to do so by December 31, 2023, could result in a loss of approximately $1.5 billion in tax revenue in 2024. This further highlights the importance of swift action in enforcing robust tax reporting rules for cryptocurrency brokers.
A Growing Regulatory Landscape
This development occurs against the backdrop of Wall Street banks supporting Elizabeth Warren’s Digital Asset Anti-Money Laundering Act, which aims to impose bank-like standards and requirements on crypto businesses. It is evident that the regulatory landscape for the crypto industry in the US is becoming more stringent, with a focus on traceability, oversight, and visibility.
The US Senators’ demand for prompt action on implementing new tax reporting requirements for digital asset brokers highlights the need to address the crypto tax gap and streamline the reporting process. Delayed implementation could result in significant revenue loss for the government. Furthermore, the regulatory landscape in the US is gradually becoming more stringent, indicating increased emphasis on traceability, oversight, and visibility within the crypto industry.