Regulation
IRS Targets Tax Compliance With New Cryptocurrency Rules
The US Treasury has revealed new regulations requiring cryptocurrency brokers to report their users’ transactions to the Internal Revenue Service (IRS).
Starting in 2026, these brokers must report gross proceeds from sales of digital assets starting in 2025. They must also report tax information on certain digital assets in 2027 for the previous year.
IRS Unveils Final Crypto Rules
New regulations target operators of hosted, custodial digital asset trading platforms wallet providers, digital asset kiosks and specific digital asset payment processors (PDAP). The IRS said these brokers cover the majority of digital asset transactions and capture a a large number of taxpayers.
Brokers must disclose movements and gains of client assets, including stablecoins like USDT and high-value NFTs. They must also declare the fair market value of the tokenized real-world assets in real estate transactions. This regulation provides crypto investors with a simple 1099 form, similar to that of banks and brokers.
Learn more: How to Reduce Your Cryptocurrency Tax: A Complete Guide
This measure constitutes a significant step forward in taxation of cryptocurrencies to curb tax evasion. IRS Commissioner Danny Werfel stressed that these regulations are crucial to improving tax compliance among high-income earners. He added that the rules would provide taxpayers with the information needed to simplify their tax declaration process.
“We need to ensure that digital assets are not used to hide taxable income, and that Regulations will improve detection of non-conformities in the high-risk digital asset space. Our research and experience demonstrate that third-party reporting improves compliance. Additionally, these regulations will provide taxpayers with much-needed information, reducing the burden and simplifying the process of reporting their digital asset activities,” Werfel declared.
In the meantime, decentralized exchanges Self-service wallets are not subject to the new reporting rules. Instead, the IRS said it is still reviewing industry feedback and needs more time to study decentralized networks.
“The final regulations do not include reporting requirements for brokers that do not take possession of the digital assets being sold or traded. These brokers are commonly referred to as decentralized or non-custodial brokers. The U.S. Treasury Department and the IRS intend to provide rules for these brokers in a separate set of final regulations,” the IRS explained.
Learn more: The Ultimate Guide to US Cryptocurrency Taxation for 2024
Industry advocacy groups like the Blockchain Association have welcomed the IRS decision to investigate Challenge The group’s chief legal officer, Marisa Tashman Coppell, said the regulator’s decision showed that the industry’s collective voice continues to have a positive impact on Washington.
Similarly, Jake Chervinsky, a prominent cryptocurrency lawyer, described the ruling as “an unexpected but huge political victory for DeFi.”
“The proposed rule implementing the tax provisions of the infrastructure bill would have required non-custodial DeFi front-ends for KYC users. Treasury just finalized the rule but only for custodians, leaving DeFi for another day,” he said. REMARK.
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