IRS cracks down on crypto tax evaders with new rules

The US Treasury Department announces new tax rules aimed at preventing cryptocurrency users from "gaming the system” by not reporting digital profits to the IRS.

The new IRS reporting requirements target not only the average cryptocurrency holder but also the crypto brokers, exchanges, and payment processors involved in the sales and exchanges of most digital assets.

The move is considered part of a larger campaign by US lawmakers and regulatory authorities to crack down on crypto holders who fail to pay taxes, purposefully and otherwise.

"This is part of a broader effort at Treasury to close the tax gap, address the tax evasion risks posed by digital assets, and help ensure that everyone plays by the same set of rules," the Treasury said in a statement.

It's estimated that the new tax bill will bring in close to $28 billion for the US government over the next decade.

Crypto transactions must be reported

Starting in 2026 (for the 2025 tax filing season), crypto users would be required to fill out a new tax form IRS Form 1099-DA which, according to the US Treasury, will make it easier for taxpayers to calculate if they owe taxes from crypto gains.

Under the new rules, the crypto intermediaries would be subject to the same reporting requirements as other Wall Street financial brokers, meaning they would have to report all of their users' digital assets sale and exchange transactions to the IRS.

Besides filing their own reports with the IRS, the brokers would also be responsible each year for sending the new 1099-DA form to its users to help with tax preparation.

The rule would cover all cryptocurrencies, as well as NFTs or non-fungible tokens, and certain cash transactions of more than $10,000 to digital assets.

The move stems from a provision in the $1 trillion 2021 Infrastructure Investment and Jobs Act, which called for the IRS to define the meaning of “crypto broker” for regulatory purposes and come up with a new IRS form specifically for reporting crypto earnings taxes.

The term “broker” will now cover both centralized and decentralized digital asset trading platforms, crypto payment processors, and certain online wallets used to store digital assets.

Currently, the IRS requires users to report most crypto trading activities on their tax returns – even if the transactions do not result in any digital gains.

Users have also been responsible for calculating digital profits and losses for tax returns without any guidance, as crypto trading platforms have not been required to provide that information to the IRS or the users themselves.

New rules, mixed reviews

The feds published the new proposal Friday to mixed reviews from the crypto industry.

"Today's proposal from the IRS is confusing, self-refuting, and misguided,” said Miller Whitehouse-Levine, the CEO of the decentralized finance lobbying group DeFi Education Fund.

Whitehouse-Levine argues the new proposal would neither make filing taxes easier nor improve tax compliance.

“It attempts to apply regulatory frameworks predicated on the existence of intermediaries where they don't exist," he said in a statement released Friday.

Meantime, Blockchain Association CEO Kristin Smith had a more positive response to the US Treasury announcement.

Smith says if implemented properly, the new rules "could help provide everyday crypto users with the necessary information to accurately comply with tax laws."

Some Democratic senators, including former presidential candidate Elizabeth Warren of Massachusetts, sent a letter to the US Treasury earlier this month urging the agency to fast-track the new rules in an effort to prevent tax evaders and crypto brokers from continuing to “game the system.”

The Treasury said it will be accepting feedback on the new crypto tax proposal until October 30th, before a public hearing on the matter will be held on November 7th and 8th.

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