By George Ward
Two United States federal agencies have proposed new guidelines to ensure regulatory oversights on crypto brokers, otherwise known as middlemen. The US Department of Treasury and the Internal Revenue Service (IRS) have announced a new set of regulatory guidelines mandatory for crypto brokers to follow when submitting their reports to the government tax body.
The Proposed Requirements
According to the Office of Advocacy of the US Small Business Administration, the proposed regulatory guidelines for crypto brokers were released on August 29. The office revealed that these regulations will establish a structured framework for digital asset brokers.
Trading platforms, payment processors, and certain hosted wallet providers are included in the proposed law. Under these proposed rules, one of the primary responsibilities of these brokers will be to carefully document and report the total gross proceeds from digital asset transactions on their platforms.
Accordingly, this regulatory change will become effective on January 1, 2025. The organization noted that the start date of January 1, 2025, gives stakeholders plenty of time to adapt and integrate these regulations into their operations.
The move demonstrates a thoughtful approach, recognizing the complexities of the digital asset landscape while providing the necessary runway for actors to comply. In addition to reporting their gross proceeds, they must provide detailed information on gains and losses resulting from the sale of crypto assets in their custody.
The move aims to provide transparency and ensure seamless financial activities in the digital asset ecosystem.
Ensuring Tax Payer Compliance
The anticipated regulations, as outlined in a corresponding document released by the Federal Register, aim to increase taxpayers’ compliance. This is expected to be accomplished by providing the IRS with greater clarity regarding the income generated by taxpayers in the digital asset space.
In addition, the proposed framework is strategically designed to close reporting gaps and provide a more complete picture of financial activity in this domain. The IRS gains a more comprehensive understanding of digital asset earnings and transactions by accessing detailed reporting from cryptocurrency brokers.
Thus, the tax body can enforce tax regulations more effectively, ensuring taxpayers fulfil their financial obligations accurately and transparently. Meanwhile, the Treasury Department and the IRS have invited small businesses across the United States, seeking their insights on how the upcoming regulations will impact their operations.
Through this collaborative effort, the IRS aim to collect valuable input and perspectives to ensure that rules are implemented with a proper understanding of the diverse landscape of small businesses. Accordingly, the tax body has scheduled a public hearing of this dialogue for November 7, 2023.
Furthermore, once formalized, the regulations will usher in a fundamental shift for brokers operating in the US crypto market. They must file detailed information on earnings returns using the new Form 1099-DA with the tax agency.
Additionally, brokers will be required to provide payee statements to their customers, giving them a clear overview of their financial transactions involving digital assets. The requirement for dual reporting creates a robust framework for accountability and transparency within the cryptocurrency ecosystem.
Meanwhile, the US Government Accountability Office has reportedly advocated for stricter crypto regulation, referencing the spot market for non-security assets as its reason for this move.