Monday, April 15, 2024
Blockchain

U.S. Senators Urge Treasury and IRS for Swift Cryptocurrency Tax Rule Implementation

A group of seven U.S. Senators, including prominent figures Elizabeth Warren and Bernie Sanders, submitted a letter to Treasury Secretary Janet Yellen and IRS Commissioner Daniel Werfel. This letter voiced the Senators’ concerns regarding a significant delay in implementing a proposed rule concerning tax reporting requirements for cryptocurrency brokers. The rule, designed to bridge a substantial cryptocurrency tax gap, has seen a two-year delay, pushing its effective date to 2026 for transactions occurring in 2025.

The proposed regulation is a response to the growing crypto tax gap, which, as of 2022, was believed to cost the IRS around $50 billion annually. This loss stems from either consumers’ lack of understanding regarding crypto transactions’ tax implications or deliberate tax evasion by malicious actors. By instituting reporting requirements for crypto brokers, the rule aims to provide both crypto users and the IRS with essential information to ensure accurate tax reporting and collection.

The proposed rule outlines a broad definition of “brokers” to include any party facilitating cryptocurrency sales while having knowledge about the seller and the transaction. It also defines “digital assets” as a “digital representation of value” recorded on a cryptographically secured distributed ledger or similar technology. These definitions are in line with the language contained in the Infrastructure Investment and Jobs Act, providing a legal basis for the proposed regulations.

The Senators expressed their alarm over the self-imposed two-year delay in implementing the rule, arguing that this postponement contradicts the directives of the bipartisan Infrastructure Investment and Jobs Act. The delay could potentially lead to a significant loss in tax revenue, estimated to be billions of dollars in the initial years of implementation, according to the Joint Committee on Taxation. Moreover, the delay offers an extended window for crypto industry lobbyists to undermine the administration’s efforts to establish basic reporting requirements, at a time when there’s already opposition to the recently enacted reporting mandates.

Senator Warren highlighted the broader implications of the delayed rule on October 11, referring to cryptocurrency as a “not-so-secret financial weapon” used by Hamas amidst its conflict with Israel. The urgency for implementing crypto tax rules also ties into global concerns regarding the misuse of cryptocurrencies for illicit activities.

In light of the concerns raised, the Senators urged the Treasury Department and the IRS to expedite the implementation of the proposed rule to uphold tax law integrity, ensure clarity for law-abiding taxpayers, and secure crucial tax revenue from a largely unregulated crypto sector. They have requested an update on the efforts towards this goal by October 24, 2023.

Image source: Shutterstock

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