US Government Proposes New Crypto Regulations for Brokers

11:03 am
September 7, 2023

The US Department of the Treasury and the Internal Revenue Service (IRS) recently unveiled a proposal for new regulations governing cryptocurrency brokers. The regulations, which are aimed at improving financial transparency and taxpayer compliance, will require US-based brokers to file information returns with the IRS using the new Form 1099-DA. Brokers will also be required to provide payee statements to customers.

According to the proposal, digital asset brokers, including trading platforms, payment processors, and certain hosted wallet providers, will need to report gross proceeds for all sales or exchanges of digital assets starting on January 1, 2025. However, the regulations will begin to be implemented on or after January 1, 2026.

The release of the proposal comes in response to a report from the United States Government Accountability Office (GAO) that highlighted the need for stronger regulations in the cryptocurrency industry.

Regulations for Digital Asset Middlemen

The regulatory proposal refers to cryptocurrency brokers as “digital asset middlemen.” These brokers will be required to provide information on gains and losses incurred during the sale of cryptocurrency assets. The increased transparency is expected to result in higher levels of taxpayer compliance, as the IRS will have access to more comprehensive financial information.

The Treasury Department and the IRS have invited small businesses to provide feedback on how the regulations might impact them. A public hearing has been scheduled for November 7, 2023.

Once the proposed regulations are enacted, all brokers operating in the United States will be required to submit information returns to the IRS using the new Form 1099-DA and provide payee statements to their clients.

FAQ

What are the proposed regulations for crypto brokers?

The proposed regulations require US-based brokers to file information returns with the IRS using the new Form 1099-DA and provide payee statements to customers. The regulations also mandate reporting of gross proceeds for all sales or exchanges of digital assets.

When will the regulations be implemented?

The regulations are set to begin implementation on or after January 1, 2026. However, brokers will be required to report gross proceeds starting on January 1, 2025.

How will the new regulations improve taxpayer compliance?

The increased reporting requirements will provide the IRS with more comprehensive information on taxpayers’ financial transactions, resulting in higher levels of compliance with tax obligations.

Will the regulations affect small businesses?

Small businesses in the United States are encouraged to provide feedback on how the regulations might impact them. The Treasury Department and the IRS have scheduled a public hearing on November 7, 2023, to gather input from small businesses.

What forms will brokers need to submit under the new regulations?

Under the new regulations, brokers will need to submit information returns to the IRS using the new Form 1099-DA and provide payee statements to their clients.

Where can I find more information about the proposal?

The full proposal can be found on the Office of Advocacy of the US Small Business Administration website.

Summary

The US Treasury Department and the IRS have introduced a proposal for new cryptocurrency regulations affecting brokers. The regulations aim to improve financial transparency and taxpayer compliance by requiring brokers to file information returns with the IRS and provide payee statements to customers. The regulations, set to be implemented on or after January 1, 2026, will require brokers to report gross proceeds for all sales or exchanges of digital assets starting on January 1, 2025. The Treasury Department and the IRS have invited small businesses to share their perspectives on the impact of these regulations. Once enacted, all brokers operating in the United States will need to submit information returns using Form 1099-DA and provide payee statements to clients.


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