The United States government is proposing new tax rules for cryptocurrency transactions that could shake up the market. According to the Treasury Department, the rules would help taxpayers determine their tax liabilities related to profits and possible deductions from the sale of digital assets.
The proposed regulations have been published in a white paper, detailing the proposed changes to US tax law. The goal is to ensure that exchanges, wallets and other platforms accurately report the buying and selling of cryptocurrencies.
The changes were made in response to the growing popularity of digital assets such as cryptocurrencies, which are increasingly used in financial transactions.
Brokers and wallets will have to supply users
According to the document, the new regulations would require that estate agents, payment processors of digital assets and for cryptocurrency wallets, report on sales of digital assets to customers in certain sales or purchase transactions.
The new regulations also include rules for determining the realized value and the calculation basis for transactions in digital assets. These rules could ensure that brokers and people executing trades accurately report sales and exchanges of digital assets and that taxes are calculated correctly.
The document also contains rules for the ‘backup hold on digital asset transactions’a mechanism that enables the US government to do so collecting taxes from sources of income that are not taxed at source.
This means that if a broker, wallet, or person reporting transactions fails to meet their tax obligations, the government can withhold a portion of the amount to ensure taxes are paid. Which can be translated as an automatic tax collected at the time of transactions.
The U.S. government believes these changes are necessary to ensure that digital asset transactions are taxed fairly and that taxes are properly collected.
The proposed new regulations will be open for public comment for a period of 60 days after publication in the Federal Register. The US government also plans to hold a public hearing on the proposed regulations.
Cryptocurrency wallets and decentralized exchanges are under the radar of the IRS
The scary part of the proposed new rules has to do with cryptocurrency wallets, which have fallen under the radar of the US tax authorities.
According to the document, digital asset wallets, whether hosted by third parties (hot wallet) or not (cold wallet), are considered necessary to transfer access to or control of digital assets.
This means that the cryptocurrency wallets would be considered digital asset brokerswould therefore be subject to the proposed new tax rules.
The US government states that some non-custodial trading platforms, such as decentralized brokerage housesuse automated market maker (AMM) systems that rely on liquidity pools to automatically facilitate buy and sell orders on a platform.
“The Treasury Department and the IRS hope that this proposal will eventually require operators of platforms commonly referred to as decentralized exchanges to collect customer information and report sales information about their customers” says the document.
Therefore, companies developing cryptocurrency wallets would be required to file information reports and provide payment statements on digital asset dispositions made to customers in certain transactions.
Such a change is significant as many people use cryptocurrency wallets to store their cryptocurrencies and use decentralized exchanges. Until now, these wallets have not been considered digital asset brokers.
The inclusion of cryptocurrency wallets in the proposed new tax rules could have a significant impact on the cryptocurrency industry and could lead to drastic changes in how wallets are regulated and used.
Cryptocurrency market reacts
The proposed new regulations have generated mixed reactions. Some digital asset advocates argue that regulation can hinder innovation in the sector.
Others argue that regulation is necessary to ensure that digital asset transactions are taxed fairly.
The US Treasury Department and the IRS have just released proposed crypto regulations deeming DeFi applications such as Uniswap, 1inch or MetaMask etc unacceptable. to be brokers and forced to implement KYC.
Yep.. the guys in Washington who are trying to kill crypto in the US once and for all. pic.twitter.com/KkSXmtouzG
— Dan (@btc_dan) August 25, 2023
Regardless of the differing opinions, it is likely that new tax rules for digital asset transactions will be implemented in the near future.
Investors trading digital assets should therefore be aware of the proposed changes and prepare to comply with new regulations or leave behind portfolios and companies that fit the new model.
Source: Live Coins
Barry Siefert is an accomplished journalist and author at The Nation View. He is known for his expertise in the field of cryptocurrency, and has written extensively on the topic. With a background in finance and economics, Barry has a deep understanding of the underlying technology and market forces that drive the crypto industry.
