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US Treasury Proposes Stricter Reporting Rules for Cryptocurrency Exchanges to Combat Tax Evasion

CryptoUS Treasury Proposes Stricter Reporting Rules for Cryptocurrency Exchanges to Combat Tax Evasion

The US Treasury Department, in collaboration with the IRS, has introduced proposed regulations that would require US-based cryptocurrency exchanges to disclose detailed information about their clients’ transactions starting from 2026. The goal of these regulations is to combat crypto-related tax evasion and enhance transparency in customer trades, aligning with the government’s efforts to crack down on tax noncompliance.

The proposed rules would require platforms that facilitate the trading of digital assets, known as crypto brokers, to track and report information such as customers’ capital gains and losses. Similar to requirements for traditional stock and bond brokers, these regulations aim to ensure that tax obligations related to cryptocurrency transactions are properly reported.

The IRS intends to create Form 1099-DA for brokers to provide taxpayers with the necessary information to determine their tax liability. These rules are part of a broader initiative to regulate the digital asset market, particularly following significant incidents such as the collapse of crypto exchange FTX and other high-profile crypto companies in the past year.

Notably, the proposed regulations exempt companies involved in validating cryptocurrency transactions through mining or staking from reporting requirements. This exemption aligns with the Treasury’s previous indications and has garnered support from various lawmakers.

The definition of digital asset brokers in the proposed regulations encompasses trading platforms, payment processors for digital assets, certain hosted wallet providers, and those who offer to redeem digital assets regularly. However, individuals engaged solely in distributed ledger validation, including miners and stakers, are exempt from broker requirements.

The objective of these proposed regulations is to minimize tax evasion within the crypto industry and ensure a level playing field for investors and businesses. The regulations are open for public comments until October 30, 2023, and a public hearing is scheduled for November 7, 2023.

In conclusion, the US Treasury’s proposed regulations represent a step toward regulating the cryptocurrency market and enforcing tax compliance. By imposing reporting requirements on crypto brokers while exempting miners and validators, the government aims to strike a balance between oversight and supporting legitimate crypto activities. The upcoming comment period and public hearing will provide insights into how the industry responds to these regulatory measures.

By FCCT Editorial Team

Disclaimer: The views expressed in this article are independent views solely of the author(s) expressed in their private capacity.

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