In a bid to tighten the reins on cryptocurrency taxation, anti-crypto Senator Elizabeth Warren, along with Senators Bob Casey, Richard Blumenthal, and Bernie Sanders, have addressed a letter to the Internal Revenue Service (IRS) urging the implementation of stringent tax reporting rules for “crypto brokers.” The letter, dated August 2, was also forwarded to the Treasury Department, signifying the lawmakers’ seriousness in addressing this issue.
Background: The Infrastructure Investment and Jobs Act (IIJA)
In November 2021, the Congress passed the Infrastructure Investment and Jobs Act (IIJA), which included provisions that required third-party “crypto brokers” to report crucial information on crypto sales, gains, and losses to the IRS. However, the term “crypto brokers” was subject to heated debates among lawmakers, as it encompassed a wide array of entities, including automated software systems like validators, nodes, wallet providers, miners, and stakers.
Lack of Implementation and Revenue Loss Concerns
Despite the IIJA being in effect for nearly two years, the Treasury Department has not yet published the proposed rules, causing unease among the Senators. The quartet expressed their concern that the IRS might miss out on an estimated $1.5 billion in tax revenue for the 2024 fiscal year if they fail to meet their congressionally-mandated deadlines for implementing a final rule. This potential loss has raised alarm bells and prompted urgent action.
The Senators’ Perspective
Senator Warren and her anti-crypto colleagues assert that lax tax reporting rules could enable tax evaders in the cryptocurrency industry to continue exploiting the system, leading to a significant loss of revenue for the US government. They emphasize the need to prevent tax evaders and crypto intermediaries from taking advantage of loopholes and syphoning billions of dollars annually from the government.
Desire for Prompt Action
In their letter, the Senators called for the immediate publication of the new rules before the December 31, 2023 deadline. Additionally, they requested a response from the IRS no later than August 15, signaling their urgency in addressing the issue and rectifying any potential gaps in taxation policies.
Recent IRS Ruling on Crypto Staking
Coinciding with the Senators’ letter, the IRS recently issued a Revenue Ruling to clarify the taxation treatment of income earned from crypto staking. According to the ruling, American crypto investors must report staking rewards as gross income in the year they receive them. The “fair market value” of staking rewards should be included in their annual income and determined at the time the assets are received, as stated by the IRS.
The request from Senator Elizabeth Warren and her fellow Senators highlights the growing concerns surrounding cryptocurrency taxation and the potential for significant revenue loss due to tax evasion. The IRS’s response and the implementation of updated rules for crypto brokers could play a crucial role in ensuring a fair and transparent tax system for the booming cryptocurrency industry. As the crypto market continues to evolve, it remains essential for regulators to strike the right balance between innovation and taxation to safeguard the interests of both taxpayers and the government.