By Evan Spicer
Director of Cryptocurrency Investigations
The U.S. Treasury Department and the Internal Revenue Service (IRS) have announced a new set of proposed regulations for cryptocurrency brokers, aimed at improving tax compliance and transparency in the digital asset industry.
The proposed rules, which were published in the Federal Register on September 11, 2023, would require brokers that transfer any digital asset to provide information returns and statements to both the IRS and the recipients of those transfers. The information would include the name, address, and taxpayer identification number of the sender and the recipient, as well as the amount and type of digital asset transferred.
The proposed rules would also define a “digital asset” as any asset that is issued and transferred using distributed ledger technology, such as blockchain. This would include not only cryptocurrencies, but also non-fungible tokens (NFTs), stablecoins, and other emerging forms of digital value.
The Treasury and the IRS said that the proposed rules are necessary to address the “substantial” underreporting of income from transactions involving digital assets, which pose “unique challenges” for tax administration. They also said that the proposed rules are consistent with the bipartisan infrastructure bill that was signed into law by President Biden in August 2023, which included a provision to expand the definition of a broker for tax purposes to include any person who provides services for transferring digital assets.
The proposed rules are open for public comment until November 10, 2023. The Treasury and the IRS said that they will consider the feedback from stakeholders and the public before issuing final regulations. They also said that they will continue to work with other federal agencies and international partners to develop a comprehensive and coherent regulatory framework for digital assets.
One of the questions that may arise from the proposed rules is what are the penalties for non-compliance. According to the IRS, failure to file or furnish an information return or statement may result in a penalty of $100 for each return or statement, with a maximum penalty of $1.5 million per year. If the failure is due to intentional disregard, the penalty is increased to $250 for each return or statement, with no maximum limit. Additionally, failure to comply with the proposed rules may also expose brokers to criminal liability under existing tax laws.