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Cryptogambling / U.S. lawmakers push for crypto tax clarity

U.S. lawmakers push for crypto tax clarity

Publish Date: 12/10/2023
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U.S. Senators Elizabeth Warren, Bernie Sanders and five other senators have criticized a two-year delay in implementing a rule on tax reporting requirements for crypto brokers. The senators warned the Treasury Department and Internal Revenue Service that the IRS could be missing out on billions of dollars each year.

In response to public concern that cryptocurrencies could be used for illicit activities, the Treasury Department and IRS proposed rules requiring brokers to report sales and exchanges of digital assets by customers. These rules are scheduled to go into effect in 2026 for transactions in 2025 and would require proceeds to be reported on a modified Form 1099-DA.

In an October 10 letter to Treasury Secretary Janet Yellen and IRS Commissioner Daniel Werfel, the seven senators urged immediate implementation of the proposed rule, saying, “The time to act is now.”

Warren, who has been vocal about the issue, claimed on X (formerly Twitter) that cryptocurrencies are the financial weapon that funds terrorist organizations, Chinese fentanyl networks and North Korea’s missile program. Adding to that, the senator raised concerns that rule loopholes may be exploited to avoid taxation.

However, analysts argue that reporting on Form 1099-DA may not be sufficient to tackle the complexities of off-chain transactions in the crypto space. Many businesses, including crypto wallet Metamask developer Consensys, maintain that the proposed regulations fail to accommodate the crypto industry’s rapidly developing nature and unique technological complexities.

Consensys sent a letter on October 9 to the IRS and Treasury, requesting that the implementation of the regulations be postponed for at least one year after their finalization. They believe additional time is necessary to develop a comprehensive verification system that does not stifle innovation.

Bipartisan coalition

A day after sending the letter, Senator Warren issued a press release on her website. The senator announced a bipartisan coalition for the Digital Asset Money Laundering Act.

Supported by both Democratic and Republican senators, the act aims to guide the digital asset ecosystem to comply more with the anti-money laundering and counter-financing of terrorism (AMF/CFT) frameworks that govern a portion of the financial system.

Joining the bipartisan coalition are Chair of the Senate Homeland Security and Governmental Affairs Committee Dick Durbin; Chair of the Senate Judiciary Committee Tina Smith; and other senators such as Gary Peters, Angus King, Jeanne Shaheen, Bob Casey and Richard Blumenthal, among others.

Senator Joes Manchin said he was glad to see both sides joining the coalition to prevent malicious actors from using cryptocurrencies to finance criminal activities. “It’s time to bring the Digital Asset Anti-Money Laundering Act to the Senate floor as a matter of national security,” he said.

Public hearing

The crypto reporting rule, proposed by the IRS in August, is still open to public comment until October 30. The Treasury has announced that a public hearing is scheduled for November 7. A second public hearing will be held on November 8 if the number of requests to speak at the first hearing exceeds the number that can be accommodated.

If the rule is in effect, brokers would be required to help taxpayers determine whether they owe taxes through crypto. Brokers will be actively involved in the process as they have to report information on digital asset transactions to the authorities.

Representative Patrick McHenry, who is currently acting as interim House Speaker following Republican lawmakers voting to declare the office vacant, has criticized the measure as an “attack on the digital asset ecosystem.”

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