In a recent letter addressed to Treasury Secretary Janet Yellen and IRS Commissioner Daniel Werfel, US Senators led by Elizabeth Warren have demanded prompt action on implementing new tax reporting requirements for digital asset brokers.
The letter references the Infrastructure Investment and Jobs Act (IIJA), a bipartisan measure enacted nearly two years ago that mandated improved reporting practices to address the estimated $50 billion crypto tax gap and streamline the process for taxpayers reporting crypto income.
As the Senators highlighted,
“Congress directed the Treasury Department (Treasury) and the Internal Revenue Service (IRS) to finalize new implementing rules by January 1, 2024. Nearly two years have passed since the law was enacted, and the implementation deadline is less than six months away – but Treasury has yet to publish proposed rules.”
The Senators expressed concerns about the potential failure of these agencies to meet congressionally-mandated deadlines for implementing final rules, underscoring the need for swift action to enforce robust tax reporting rules for cryptocurrency brokers.
The IIJA was first passed when the US faced a $1 trillion tax gap, with the emerging and lightly-regulated $2 trillion cryptocurrency sector contributing to this issue, according to then-IRS commissioner Charles Rettig.
A May 2021 Treasury report asserted that the anonymity associated with crypto transactions poses a significant detection problem, facilitating tax evasion and other illegal activities. In support of this assessment, the Senators’ demand for the swift implementation of robust tax reporting rules gains further significance.
Crypto tax rules
The new rules introduced by IIJA carry profound implications for the crypto ecosystem. They mandate third-party brokers facilitating crypto transactions to report information related to the user’s crypto sales, gains or losses, and certain large transactions to the IRS and users themselves.
The Senators claim this move aims to simplify the tax filing process for crypto users and enable the IRS to use its resources more effectively to pursue large-scale tax evasion.
More crucially, these new rules are projected to raise an estimated $1.5 billion in tax revenue in 2024 alone and nearly $28 billion over the next eight years.
The Senators’ letter underscores the believed urgency of implementing these rules, cautioning that failure to do so by December 31, 2023, could result in a loss of an estimated $1.5 billion in tax revenue in 2024.
This development comes amidst the background of Wall Street banks backing Elizabeth Warren’s Digital Asset Anti-Money Laundering Act, which seeks to impose bank-like standards and requirements on crypto businesses.
It seems evident that the regulatory landscape for the crypto industry in the US is becoming more stringent, with a growing emphasis on traceability, oversight, and visibility.