In a move to regulate the sale and exchange of digital assets, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) have introduced proposed regulations.
This initiative is aligned with the Biden-Harris Administration’s bipartisan Infrastructure Investment and Jobs Act (IIJA) and aims to enhance tax compliance for digital assets while ensuring equitable treatment for taxpayers.
Regulation to close tax gap and mitigate tax evasion
The proposed regulations, open for public input until October 30, seek to require brokers of digital assets to report specific sales and exchanges. By aligning digital asset tax reporting with reporting requirements for securities and other financial instruments, these regulations intend to close the tax gap and mitigate risks associated with tax evasion through digital assets.
Currently, taxpayers are liable for taxes on gains and potential deductions on losses from digital asset transactions. However, calculating these gains and losses can be intricate and costly for many. The proposed rules mandate brokers to furnish a new Form 1099-DA, which aids taxpayers in determining their tax obligations. This simplification aims to spare taxpayers from complex calculations and the expense of digital asset tax preparation services.
Under the proposed regulations, brokers would start reporting information on digital asset sales and exchanges from 2025, with the reporting requirement commencing in 2026. The provisions are projected to reduce tax evasion and contribute almost $28 billion in revenue over a decade, as estimated by the nonpartisan Joint Committee on Taxation during the IIJA’s passage.
The Treasury Department and the IRS encourage feedback on the proposed regulations from stakeholders such as affected taxpayers and industries. Written comments will be accepted until October 30, 2023, and public hearings are scheduled for November 7 and, if necessary, November 8, 2023. The final regulations will be shaped after careful consideration of all public input.
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