The Biden Administration’s new crypto tax rules aim to simplify reporting and boost compliance, sparking mixed industry reactions.
The U.S. Treasury Department under the Biden administration has recently rolled out a set of new tax reporting guidelines targeting crypto users. Aimed to bolster the tax compliance of crypto users, this move comes as an extension of the $1 trillion 2021 Infrastructure Investment and Jobs Act. The new regulations could bring an additional revenue of approximately $28 billion over the next 10 years. The framework proposes the implementation of a novel tax form known as Form 1099-DA. This form aims to simplify tax calculations related to digital asset gains for users.
What Does the New Rule Entail?
At the heart of the new proposal lies the definition of a ‘broker,’ which now includes centralized and decentralized cryptocurrency trading platforms, payment processors, and certain types of online wallets. Brokers must adhere to information reporting norms similar to those governing bonds and stocks. This ensures that the taxation rules for digital assets align with those for traditional financial instruments.
The Treasury Department expects brokers to send the Form 1099-DA to both the IRS and the holders of digital assets. The primary objective here is to ease the tax preparation process. Form 1099-DA will eliminate the need for complex calculations to determine tax liabilities. This new tax form is part of an overarching strategy to close the tax gap and to ensure uniformity in tax compliance across all financial assets.
Mixed Industry Responses and The Road Ahead
Reactions from the cryptocurrency industry to the new proposal have been varied. Kristin Smith, the CEO of the Blockchain Association, sees potential in the new rules, suggesting that they could aid regular crypto users in abiding by tax regulations. Conversely, Miller Whitehouse-Levine, CEO of the DeFi Education Fund, argues that the new rules could complicate rather than ease tax filing and compliance.
The Treasury Department has planned to make these rules effective from the 2025 tax year onwards, thereby affecting the 2026 tax filing season. Currently, the IRS mandates the reporting of a wide range of digital asset transactions, such as cryptocurrency trading. However, it falls on the users themselves to calculate their gains or losses for tax purposes, with no requirement for the trading platforms to share this information with the IRS.
Several Democratic Senators, including Elizabeth Warren, have already expressed their support for speedy implementation of these rules. They believe that delays could lead to further exploitation of the tax system by tax evaders and intermediaries in the crypto industry.
The Treasury Department and the IRS have opened up the proposal for public feedback until October 30. Additionally, public hearings are scheduled for November 7-8 to discuss the proposed changes. This provides an opportunity for all stakeholders to share their perspectives and to contribute to the shaping of the future tax landscape for digital assets.