Controversial Crypto Tax Proposal Sparks Industry Outrage and Debate• August 25, 2023 10:29 pm • Comments
The U.S. Treasury Department’s new proposal for handling digital asset taxes has faced immediate criticism from the crypto industry.
The proposal’s extensive scope, particularly its tax-reporting requirements, has ignited concerns that it might encompass decentralized crypto operations that are difficult to bring into compliance.
Critics point to the proposal’s language as “overbroad,” potentially affecting self-hosted wallets, decentralized exchanges like Uniswap, and smart contracts with multisignature security setups.
They argue that entities like Metamask could be captured under reporting requirements, forcing them to implement new know-your-customer rules.
JUST IN: 🇺🇸 US Treasury and IRS propose more regulations on the sales of #Bitcoin & crypto by brokers "in an effort to crack down on tax cheats."
Stifling innovation yet again 🤡🤡🤡 pic.twitter.com/DkBqiGPQ1L
— Bitcoin Magazine (@BitcoinMagazine) August 25, 2023
The rule is part of a broader push by Congress and regulatory authorities to crack down on crypto users who may be failing to pay their taxes.
A proposed new tax reporting form called Form 1099-DA is meant to help taxpayers determine if they owe taxes, and would help crypto users avoid having to make complicated calculations to determine their gains, the Treasury Department said.
It would also subject digital asset brokers to the same information reporting rules as brokers for other financial instruments, such as bonds and stocks, Treasury said.
Despite the criticisms, Congressman Patrick McHenry and Kristin Smith, CEO of the Blockchain Association, acknowledge the potential for the proposed rules to simplify tax reporting for crypto investors.
McHenry emphasized that the rules should align with the intent of Congress, reflecting the unique nature of the crypto ecosystem.
The Treasury Department’s proposal, part of the broader push to enhance crypto tax compliance, requires cryptocurrency brokers, including exchanges and payment processors, to report user sales and exchanges of digital assets to the Internal Revenue Service (IRS).
A new tax reporting form, Form 1099-DA, aims to simplify tax calculations for crypto users and bring digital asset brokers under the same information reporting rules as traditional financial instruments.
U.S.’s new crypto tax proposal is a disaster.
Forcing DEXs to collect customer information shows that those who wrote this proposal have no idea how this tech works & what is its goal.
Implementing rules like this is almost as bad as banning the entire industry. pic.twitter.com/BDF4L2WHhO
— The DeFi Investor 🔎 (@TheDeFinvestor) August 25, 2023
“Following the passage of the Infrastructure Investment and Jobs Act, numerous lawmakers of both parties made clear that any proposed rule must be narrow, tailored, and clear,” he said.
“However, it fails on numerous other counts. Any additional rulemakings related to the other sections from the law must adhere to Congressional intent.”
“The crypto ecosystem is very different from that of traditional assets, so the rules must be tailored accordingly and not capture ecosystem participants that don’t have a pathway to compliance,” said Kristin Smith, CEO of the Blockchain Association, in a statement shortly after the proposal emerged.
The proposal defines a “broker” to include centralized and decentralized digital asset trading platforms, crypto payment processors, and certain online wallets. This would encompass cryptocurrencies and non-fungible tokens.
The new rules are tied to the 2021 Infrastructure Investment and Jobs Act, aimed at increasing tax reporting requirements for digital asset brokers. They are expected to generate around $28 billion in a decade.
The Treasury has proposed that the rules be effective for brokers in 2025 for the 2026 tax filing season.
The industry has until October 30 to submit objections and feedback, followed by public hearings on November 7 and 8.
While criticisms persist, the proposal could potentially streamline crypto tax reporting and encourage compliance while addressing the unique challenges posed by the crypto ecosystem.
The @USTreasury's crypto tax proposal has finally landed on crypto world, and some of those that might face new tax-reporting requirements are finding it unsettling.
— CoinDesk (@CoinDesk) August 25, 2023
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