US delays tax reporting for crypto brokers

These new rules are part of the Biden administration’s Infrastructure Act, which placed digital asset firms under the controversial definition of “broker.” Similar to brokerages, it subjects crypto platforms to the IRS information reporting regime.

The new regulations were enacted in late 2021 and are expected to come into effect next month. If adopted, crypto exchanges will use a tax form known as a 1099-K to capture individual annual cryptocurrency activity subject to tax. Outside of crypto, this tax form is typically given to a taxpayer who makes transactions with a total value of $20,000 or more.

Citing the digitized pseudo-anonymous nature of crypto transactions, the IRS said it allows taxpayers to conceal their crypto and relevant activities taxable income. Prior to this, the reporting burden fell solely on crypto traders, so authorities believe that requiring crypto brokers to generate 1099 forms would help increase tax compliance.

The IRS also explained how to track fair market value, capital gains and losses in the context of virtual currencies. When a transaction is facilitated by a cryptocurrency exchange, the value of the taxed transaction is the amount that was recorded by the platform in US dollars. In addition, the taxpayer’s buy/sell price will determine whether a gain or loss has occurred as well as its duration.

The IRS said it plans to make the crime public tax evasion case involving cryptocurrency, which opens a new front in the agency’s scrutiny of the industry.

As described later in the petition, while taxpayers are required to report all profits and losses associated with their crypto transactions, the IRS’ experience “has demonstrated significant tax compliance shortcomings regarding cryptocurrencies. currencies and other digital assets”.

Basically, the IRS still considers crypto assets to be property rather than currency for income tax purposes, much like its regulatory guidance was issued seven years ago. This means that the authority will continue to tax crypto profits and losses like those of stocks, at capital gains rates.

Based on its recent experiences with cryptocurrencies, the IRS believes that crypto transactions are not properly reported on tax returns. Among other reasons, the authority says there is no third-party reporting to the IRS on these transactions, and previous summonses served on other cryptocurrency dealers have revealed significant under-reporting of these transactions.