Treasury proposes crackdown on crypto tax evasion

The Treasury Department unveiled a proposal last week which is intended to crack down on tax evasion in the crypto sector by requiring cryptocurrency brokers to report information on their clients' transactions to the IRS beginning in 2026. .Under the law, brokers — hosted wallets, payment processors and digital-asset trading platforms on both centralized and decentralized exchanges — would initially be required to report information in 2026 on digital asset sales and exchanges for transactions made the previous year. According to the Joint Committee on Taxation, the provisions would raise nearly $28 billion over 10 years. . As reported by Bloomberg News, the regulations clarify reporting rules enacted two years ago to reduce crypto-related tax evasion by offering more transparency into customer trades. The IRS has found that unpaid digital-asset taxes contribute to the tax gap, which is more than $500 billion every year. ."The proposed regulations would clarify and adjust the rules regarding the tax reporting of information by brokers, so that brokers for digital assets are subject to the same information reporting rules as brokers for securities and other financial instruments," a press release stated..Currently, taxpayers owe taxes on gains and can deduct losses on general crypto assets when sold. The new rule would issue a new form,1099-DA, to help them determine whether they owe taxes, "and would help taxpayers avoid having to make complicated calculations or pay digital asset tax preparation services in order to file their tax returns," according to a press release. .House Financial Services Chair Patrick McHenry (R-N.C.) called the proposal "another front in the Biden administration's ongoing attack" on cryptocurrencies. "The Biden administration must end its effort to kill the digital asset ecosystem in the U.S. and work with Congress to finally deliver clear rules of the road for this industry," he added. .Public comment and feedback on the proposal is open until Oct. 30. .Federal regulators, including the Treasury Department, have frequently warned of the risks cryptocurrencies pose to traditional finance. Last year, the Financial Stability Oversight Council — which includes leaders of the Treasury Department, Federal Reserve and Securities and Exchange Commission — said crypto-assets could threaten the stability of the country's financial system without regulators enforcing current regulations and being granted more oversight over the space. .The groups issued 10 recommendations, including that regulators enforce current regulations; and that Congress allow for regulators to have "explicit rulemaking authority" over the spot market for non-security crypto-assets and for regulators to supervise the activities of affiliates and subsidiaries of crypto-asset firms.