The new regulations, which are a result of the $1 trillion bipartisan 2021 Infrastructure Investment and Jobs Act, are intended to clamp down on cryptocurrency users who could be neglecting their taxes. It was projected that the new regulations may generate around $28 billion in revenue over a ten-year period at the time the measure was approved.
On Friday, the U.S. Treasury Department adopted a regulation mandating that cryptocurrency brokers—including exchanges and payment processors—report to the Internal Revenue Service any updates about users' sales and swaps of digital assets.
The new regulations, which are a result of the $1 trillion bipartisan 2021 Infrastructure Investment and Jobs Act, are intended to clamp down on cryptocurrency users who could be neglecting their taxes. It was projected that the new regulations may generate around $28 billion in revenue over a ten-year period at the time the measure was approved.
According to Treasury, the regulation would gradually phase in beginning with the 2026 tax filing season, aligning the tax obligations for cryptocurrencies with the current tax reporting rules for brokers of other financial assets like bonds and equities.
Treasury officials said that the final regulation was changed from the initial plan to reduce some costs on brokers and to roll in the new requirements gradually. Additionally, it has a $10,000 reporting requirement for transactions using stablecoins, a kind of cryptocurrency token that is usually linked to an asset like the US dollar.
After Treasury proposed the regulation last year, the cryptocurrency sector launched a campaign of comment letters, claiming that the rules infringed on the privacy of bitcoin owners and that the proposal's definition of a broker was too wide.
Treasury said that it had gone over more than 44,000 comments on the plan. Additionally, it said that it plans to release more regulations later this year that would impose tax reporting obligations on non-custodial brokers, such as decentralized cryptocurrency exchanges.
Treasury stressed in a statement that the new regulation "simply created reporting requirements... to help taxpayers file accurate returns and pay taxes owed under current law" and that owners of cryptocurrency "have always owed tax on the sale or exchange of digital assets."
According to the Treasury Department, the regulation creates a new tax reporting form called Form 1099-DA, which is intended to assist taxpayers in determining if they owe taxes and to save cryptocurrency users from having to do laborious computations to ascertain their earnings.
To help with their tax preparation, brokers would have to transmit the paperwork to digital asset holders as well as the IRS.
Regardless of whether the transactions produced a profit or not, the IRS presently mandates that users of cryptocurrencies declare a variety of digital asset activities on their tax returns. Users must complete the computation on their own, and the digital asset trading platforms do not provide the IRS with such data.
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