On August 29, 2023, the United States Internal Revenue Service (IRS), authorized with the responsibility of tax collection, revealed a proposed regulation appropriate to crypto brokers engaged in the handling of various digital assets such as cryptocurrencies, NFTs, and related assets within the United States. The primary objective of these regulations is evident: to streamline tax reporting processes and mitigate instances of tax evasion across the nation.
These rules are projected to take effect starting from 2026, affecting transactions occurring in 2025. However, the public’s input on this novel tax rule will be accepted until October 30, 2023. Furthermore, at least one public hearing will be conducted to gather additional perspectives.
Earlier, in a report by Todayq News, the United States Treasury Department released a new rule mandating crypto brokers to submit reports containing users’ information regarding the purchase and sale of digital assets. This includes transactions involving all types of digital assets, including payment processing and certain wallet activities.
The reports are to be sent to the United States Internal Revenue Service (IRS), with the aim of preventing tax evasion. To facilitate this, a new form, Form 1099-DA, has been introduced for reporting crypto-related taxes.
However, following the announcement of this rule on August 25, 2023, it faced substantial criticism from a diverse range of figures within the cryptocurrency community. Some critics claim that the rule fails to account for the distinctive nature of the crypto ecosystem when compared to traditional finance. Others find the rule to be confusing and misguided. Many of these critics declare that this rule has the potential to hinder the growth of the cryptocurrency industry within the United States.
Representative Patrick McHenry also criticized them as overly broad and damaging to the digital asset ecosystem. He stressed the need for specific and well-defined regulations, as outlined in the Infrastructure Investment and Jobs Act. While welcoming some aspects of the proposal, he urged collaboration with Congress for effective crypto legislation.
However, McHenry also highlighted his Keep Innovation in America Act, which narrows the definition of “broker” for tax reporting, excluding certain crypto operators. Bloomberg reports suggest the proposal covers DeFi and NFT platforms but excludes mining and staking; these are the only reasons it faced lots of criticism.