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US authorities are delaying implementation of new rules that require cryptocurrency brokers to report client gains and losses to the Internal Revenue Service.
These new rules, which are part of the Biden administration’s infrastructure law, have placed digital asset firms under the controversial definition of “brokers.” Subject cryptocurrency platforms to the IRS information reporting regime, similar to brokerage firms.
The new regulation was due to be signed in late 2021 and come into effect next month. If adopted, virtual currency exchanges will use a tax form known as a 1099-K to capture taxable individual annual virtual currency activity. Outside of encrypted domains, this tax form is typically provided to taxpayers engaged in transactions totaling $20,000 or more.
Citing the digitized pseudo-anonymity of cryptocurrency transactions, the IRS said it allows taxpayers to hide their taxable income related to cryptocurrency activity. Prior to that, the burden of reporting rested solely on crypto traders, so the authorities believe that requiring crypto brokers to complete the 1099 forms will help improve tax compliance.
The IRS is also working on ways to track fair market value, capital gains and losses in the context of cryptocurrencies. If the transaction is facilitated by a cryptocurrency exchange, the taxable value of the transaction is the amount recorded in USD by the platform. Additionally, the taxpayer’s purchase/sell price determines whether and for how long a profit or loss has been incurred.
The IRS said it plans to open up criminal cases of tax evasion involving cryptocurrencies.
As further explained in the petition, while taxpayers are required to report gains and losses related to cryptocurrency transactions, the IRS’ experience has shown that “tax compliance issues related to cryptocurrencies and other digital assets are critical.” It shows serious flaws.”
At its core, the IRS sees crypto assets as assets, not currencies, for income tax purposes, much as regulatory guidance was released seven years ago. In addition, it means continuing to tax cryptocurrency gains and losses at a capital gains rate.
Based on recent experience with cryptocurrencies, the IRS believes that cryptocurrency transactions are not properly reported on tax returns. Among other reasons, the agency has said that no third parties report such transactions to the IRS, and previous subpoenas issued to other cryptocurrency dealers have significantly reduced such transactions. revealed under-reporting.
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