U.S. Tax Crackdown on Bitcoin and Cryptocurrency Hits Delay
The Treasury Department and Internal Revenue Service are likely to delay a January date for the firms to begin tracking data such as customers’ capital gains and losses, according to people familiar with the matter and who asked not to be named at this time. The move would mean that the tax agency will delay receiving similar data that is provided by traditional financial brokers for stocks or bonds.
Tax evasion through Bitcoin and cryptocurrencies remain a concern for Washington policy makers. The treasury and the IRS have struggled to draft up rules that firms will use to collect and report the information on their clients’ trades.
Bitcoin and cryptocurrency firms will start recording their clients’ transaction data in 2023, with reports sent to the IRS and investors the following year. Industry executives have pushed back since last November complaining that the legislation was too broad.
Once regulations are in place, exchanges and brokerages will be required to share detailed transaction data with the IRS and their clients who have made trades, who could then use the information to file their taxes. The data will include name address, gross proceeds from sales, and any capital gains or losses. The Treasury said that this particular information will significantly increase compliance rates.
This data will not only help the IRS with tax fraud but also would make filing taxes easier for those who want to pay their taxes. “It could be very helpful to just standardize the reporting and put it in a way that makes it easier to digest and put on a tax return,” said Michael Desmond, former chief counsel for the IRS who is now a partner at the law firm Gibson, Dunn & Crutcher.
The head of the IRS, Charles Rettig, told lawmakers that the unpaid crypto liabilities are a large contributor to the country’s growing tax gap which is the difference between what’s actually owed and what’s actually collected.
Coinbase Global Inc, said in a statement that the industry might need as long as two years to comply with lawmakers.
“Given the broad scope of the tax provisions, uncertainty around implementation, and the short timeline before the new rules are set to take effect, we encourage the Treasury Department to extend the deadline for compliance,” said Jake Chervinsky, head of policy at the Blockchain Association trade group.