A group of seven US senators, including prominent figures Elizabeth Warren and Bernie Sanders, submitted a letter to Treasury Secretary Janet Yellen and IRS Commissioner Daniel Werfel. This letter expressed Senators’ concerns about a significant delay in implementing a proposed rule regarding tax reporting requirements for cryptocurrency brokers. The rule, intended to close a significant tax gap for cryptocurrency, has seen a two-year delay, pushing the effective date for transactions taking place in 2025 to 2026.
The proposed regulation is a response to the growing crypto tax gap, which would cost the IRS approximately $50 billion annually starting in 2022. This loss stems from consumers’ lack of understanding of the tax implications of crypto transactions, or from deliberate tax evasion by malicious actors. By establishing reporting requirements for crypto brokers, the rule aims to provide both crypto users and the IRS with essential information to ensure accurate tax reporting and collection.
The proposed rule outlines a broad definition of “brokers” to include any party that facilitates the sale of cryptocurrency while having knowledge about the seller and the transaction. It also defines “digital asset” as a “digital representation of value” recorded in a cryptographically secured distributed ledger or similar technology. These definitions are consistent with the language of the Infrastructure Investments and Jobs Act and provide a legal basis for the proposed regulations.
The senators raised concerns about the self-imposed two-year delay in implementing the rule, arguing that the delay violates the guidelines of the bipartisan Infrastructure Investments and Jobs Act. According to the Joint Committee on Taxation, the delay could potentially lead to a significant loss of tax revenue, estimated at billions of dollars in the first years of implementation. Additionally, the delay provides an extended period for crypto industry lobbyists to undermine the administration’s efforts to establish basic reporting requirements, at a time when there is already resistance to the recently issued reporting mandates.
Senator Warren on October 11 highlighted the broader implications of the delayed rule, referring to cryptocurrency as a “not-so-secret financial weapon” used by Hamas amid its conflict with Israel. The urgency to implement crypto tax rules is also linked to global concerns about the misuse of cryptocurrencies for illegal activities.
In light of the concerns raised, Senators urged the Treasury Department and the IRS to expedite implementation of the proposed rule to maintain the integrity of tax law, ensure clarity for law-abiding taxpayers, and safeguard critical tax revenue couples from a largely unregulated crypto sector. They have requested an update on efforts to achieve this goal by October 24, 2023.
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