Cryptocurrency rules are overdue

Cryptocurrency rules are overdue scaled | ltc-a

Adding to the mystery is the fact that the rules appear to have been written, having been blessed months ago by the White House Budget Office – which, until recently, was one of the last bureaucratic steps in the process of issuing bonds. regulations.

Meanwhile, the start date of the rules has been postponed indefinitely.

This has puzzled many, from members of Congress to lawyers like Lisa Zarlenga, a cryptocurrency tax expert at Steptoe.

« This is the single simplest thing they can do to improve compliance, and they’re not doing it, » said Zarlenga, a former Treasury tax official.

« I scratched my head. »

The turtle pace of the IRS contrasts with the aggressive campaign to crack down on cryptocurrencies led by the Securities and Exchange Commission, which is suing to force industry giants Coinbase and Binance to follow its regulations.

The delay also comes amid a high-profile push by the administration to reduce an estimated $500 billion in taxes that go uncollected each year, a major reason Democrats pushed through a single cash infusion. of $80 billion for the IRS.

The tax agency has been asking lawmakers for years about new cryptocurrency rules, saying it needed more clout to root out tax avoidance by people who trade digital assets.

During the debt limit negotiations, President Joe Biden complained that Republicans would not agree to a second crackdown on so-called wash sales that would prevent cryptocurrency holders from using paper losses to write off their taxes.

In a statement, Treasury spokeswoman Kristin Lynch said, « The Treasury is working diligently to finalize these important and complicated regulations. »

He didn’t respond to questions about the reasons for the delay or when the rules might be released

Still-in-the-making regulations could be contentious for the resurgent agency a controversial fight like the one seen in Congress when it first passed the rules.

At the time, in 2021, lawmakers were deeply divided, even within each party, over which corners of the digital asset world should be subject to the requirements. Strange bedfellows like the chairman of the Senate Finance Committee Ron Widen (D-Hours.) and Sen. Enchanted Cynthia (R-Wyo.) said the rules went too far.

Lawmakers wanted the $28 billion the crackdown would have to raise to help defray the cost of a infrastructure spending bill.

Congress has left many of the details to be sorted out by the Treasury, and those with a stake in the matter are now eager to see if the rules apply not just to obvious targets like Coinbase, but also to things like decentralized exchanges, people who make » cold wallets ». ” and miners.

The IRS already requires people to report crypto transactions on their annual returns. And to underscore that point, the agency began requiring people to declare in their records whether they held virtual currencies at any time of the year (in 2021, 2.3 million filers answered « yes »).

But the agency doesn’t have an easy way to determine whether what a taxpayer reports on a statement is true or complete, having to resort to audits and summons of John Doe to exchanges for the information. It’s such a big problem that experts have a hard time even estimating how much of cryptocurrency-related taxes go uncollected.

This is where the rules passed by Congress come into play. They require brokers to report to the IRS, as well as their clients, how much they have seen in the gross proceeds from the sale of digital assets.

The idea is not just to provide the IRS with independent transaction data. If people know someone else is reporting to the IRS, they’re less likely to omit the information from their returns.

This has been part of Washington’s tax collection handbook for more than 30 years, with lawmakers repeatedly expanding such « third-party reporting » to an ever-widening circle of payments. The IRS now collects more than 50 « informational » returns detailing how much people are paid for their work and how much they earned selling stocks and how much interest they paid on their mortgage.

Proponents say extending those requirements to cryptocurrencies would not only improve tax collection. It would also make it easier for people who hold digital assets to pay taxes, especially if they’re frequent traders because they won’t have to keep track of every single sale.

The rules were supposed to go into effect in January, but the administration announced late last year that they would be delayed.

The rules were approved by the White House Office of Information and Regulatory Affairs in February, which had been one of the last steps in issuing the regulations. The administration recently announced that OIRA will no longer review tax regulations.

Even once the rules are released, they will only be an initial draft: the administration has yet to take public comment on them before finalizing the requirements. Some experts predict that the agency won’t make them effective in the middle of a fiscal year because that would cause too much headache, meaning the start date could be a long way off.

Critics complain that it amounts to a boon to the cryptocurrency world.

At a recent House Financial Services Committee hearing, Rep. Brad Shermann (D-Calif.) asked Treasury Secretary Janet Yellen when the rules might be released.

“The SEC has proven that they are not afraid of crypto bros, I know you are not afraid of crypto bros, I hope the IRS is not afraid of them – when will we see these regulations?” asked Sherman, a senior subcommittee member of the capital markets panel.

Yellen said, « We’ll get back to you shortly. »