As part of the $1 trillion infrastructure bill signed into law in 2021, Congress required brokers of digital assets to detail the proceeds of their customers’ transactions to the IRS in a 1099 form. The goal of the provision, estimated to raise $28 billion in revenue over 10 years, was to collect more taxes owed from crypto trading by imposing the same rules on the industry as apply to traditional securities brokers.
But the IRS and the Treasury Department have yet to formulate the rules for enforcing the provision, leaving critical questions—such as the definition of a broker—unresolved. The IRS and the Treasury said on Friday the new reporting requirements wouldn’t take effect until the agencies had finished writing the rules governing them.
Some lawmakers have sought to amend the new reporting requirements by narrowing the definition of a broker. They, as well as cryptocurrency industry groups, have argued that the current definition could include bitcoin miners and other entities that may struggle to comply with the rules.
Washington’s approach to regulating the cryptocurrency industry has come under new fire since the collapse of exchange FTX and the arrest of founder Sam Bankman-Fried. Mr. Bankman-Fried and his team were major donors to both political parties and lobbied to try to create a regulatory regime friendly to the industry, which has lost much of its market value in the last year.
The push to require crypto brokers to report on their customers’ gains is aimed at clamping down on crypto investors’ tax avoidance. In a recent court filing, the IRS said that in 2019 only about 100,000 tax returns reported crypto transactions. Surveys suggest tens of millions of Americans have bought or sold crypto.
