The cryptocurrency industry was taken by surprise last week when it was revealed that the Senate’s bipartisan infrastructure bill expected to increase $28 billion in revenue by adding new reporting requirements that would allow the IRS to collect taxes already owed on capital gains from the selling bitcoin BTCUSD,
and other digital assets.
The exact text of the bill is still under negotiation, but experts tell MarketWatch that the average crypto investor using a centralized exchange like Coinbase COIN will
or Kraken to buy and sell crypto assets should expect the IRS to know exactly how much money they made from those trades, if the bill becomes law.
read more: Crypto Allies Protest ‘Ignorant’ New Tax Rules in Bipartisan Infrastructure Deal
Under current law, crypto exchanges are not required to report losses and gains realized by their customers through the purchase and sale of digital assets, but the legislation being debated in the Senate will change that, meaning the IRS will be aware of taxpayers’ crypto earnings.
“There has been a drastic under-reporting of bitcoin gains, and one of the reasons is that these exchanges don’t have to issue a report saying ‘hey, here’s your activity for the year,’” Tom Cardinale, a partner at the accounting firm EisnerAmper, told MarketWatch. “The IRS has urged Congress to increase enforcement of these cryptocurrencies exchanges and issuers.”
Since exchanges will likely be required to provide their customers with documentation such as a 1099-B form detailing their profits and losses, it probably won’t put too much of a burden on taxpayers to only include those figures in their annual tax returns. he said, although there will certainly be more Americans paying taxes on their crypto profits in the coming years if this bill becomes law.
The crypto industry remains concerned that the draft legislation will ensnare companies or entities that are not equipped to report the profits and losses of those they transact with. The legislation was changed over the weekend so it doesn’t specifically require entities providing non-custodial cryptocurrency services, or decentralized or peer-to-peer exchanges to report customer transactions.
sen. Ron Wyden, an Oregon Democrat, urged language change in a series of tweets on Sunday.
Jerry Brito, executive director of the Coin Center think tank, remains concerned that the IRS could interpret the legislation to require cryptocurrency miners – who provide computing power to a crypto network to verify transactions in exchange for digital assets – to take profits and losses. that they may not even be aware of.
“Yes, there were concessions, but the latest language can still be interpreted by Treasury to cover miners, lighting nodes and the like,” he said. wrote Monday on Twitter. “If that’s not Congress’ intent, there are simple solutions they can take.”
Alma Angotti, a director at the consulting firm Guidehouse, who previously held senior enforcement positions with the Securities and Exchange Commission and the Financial Industry Regulatory Authority, told MarketWatch in an interview that the true effect of the law won’t be known until the Treasury rules department goes into effect. interpret how they will maintain it.
While the language of the bill no longer directly lists decentralized exchanges as entities that must report transactions, the IRS could interpret that law that way. “The devil is always in the details in these things, and they’re going to want to write rules that are specific enough that people can comply, but broad enough that they aren’t easy to get around.”
A decentralized exchange often takes the form of a peer-to-peer network, where software code matches sellers and buyers of a security. These exchanges are an outgrowth of so-called decentralized financing and have attracted more than $100 billion in digital capital.
Also see: DeFi could revolutionize the financial world. Can regulators do something about it?
If decentralized exchanges are exempt from reporting, “it could push trades out of the regulated exchanges into the more, newer decentralized exchanges,” Angotti said. Even if they aren’t exempt from reporting, it’s hard to see how the IRS would require reporting because “there’s no one to collect that information in a truly decentralized exchange.”