Aug 25, 2023

The U.S. Treasury Department published a nearly 300-page proposed rule for crypto tax reporting that unveils the definition of a "broker" in the digital asset space.

Video transcript

The US Treasury Department published a nearly 300 page proposed rule for crypto tax reporting on Friday. Joining us now to discuss is Coindesk global policy and regulation. Managing editor Nick Day, who's also the editor of coin desks. State of crypto newsletter. Good morning to you, Nick. Good morning. Happy Friday. Happy Friday. All right. Just before the weekend, we have an almost 300 page document that we are talking about according to this document. Uh tell me about what the definition of a broker is for the crypto industry and why this is important. Yeah. So the US Treasury Department and the IRS published this document today's proposal. Uh basically saying that if you are a crypto exchange, a centralized crypto exchange specifically uh payment processor, uh certain types of decentralized crypto exchanges, certain types of hosted wallet providers, certain types of UN hosts wallet providers, uh or you know, certain other entities, you are going to be classified as a broker under the US federal tax regime, which basically means that they're gonna import, you know, specific tax reporting requirements onto you. They're gonna give you a specific form for you to report those taxes on crypto gains and sales. Uh They're gonna have a, you know, the same form is gonna be useful for your customers to know how they were supposed to report. And the whole thing here is really um a response to the 2021 bipartisan infrastructure bill, otherwise known currently as the Infrastructure Investment and Jobs Act, uh which was, you know, this whole controversial thing back in 21 for the crypto industry, at least because they thought there was gonna be a really broad and unworkable tax regime in it. So now we know what the department looks like or what they're thinking of. All right, and are crypto minors and D five platforms subject to the latest tax rules, uh Minors are exempt, some decentralized exchanges uh are not going to be exempt. Um There's some restrictions and some uh you know, in a real proposal, there are some details on how they're going to define that. Uh based on early Twitter reactions. Uh It looks like people believe that entities like meta mask might not be exempt. So they would have to uh collect customer information and be able to report taxes uh for their users. So, uh you know, I think that's probably gonna be where we're gonna start seeing a little bit of controversy here. Yeah. Talk to me a little bit about industry reaction. What have we seen in terms of, um you know, reaction on the Twitter verse especially when it comes to meta mask, people in this industry really pride themselves on being anonymous or pseudonymous. Uh How are people reacting to this information? Yeah. So, you know, the initial reactions have been, I would say less than positive. Uh A lot of it really does seem to be cons, you know, concerns spread around the privacy issues as you mentioned. Um You know, this rule has been out for literally about 50 minutes right now. So I think people are still, you know, processing and absorbing all of the, you know, the examples and the actual proposed regulations. But on the initial pass, um you know, trying to force uh you know, wallets and wall providers that don't normally have any way of collecting uh kyc info to try and implement that I could get, I think a little bit tricky because you're gonna see a lot of users just not, you know, comply. So are they going to uh you know, move to a different wallet? Are they going to find some other solution? There's also a, you know, multiyear period before this takes effect, we're looking at a 2025 tax season, uh you know, implementation for exchanges and a 2026 tax season implementation for other brokers. So, uh there is a bit of time to kind of sort through that for, you know, companies and projects that uh might be affected here. Yeah, I guess you kind of led me to my next question is this going to be something that's quite challenging for firms to put into place? Like are, are these steps? And is the process clear? My guess is if you're, you know, a crypto exchange like coin base or cracking or whoever Gemini, uh if you're, you know, a PN processor, if you're one of those entities that already had to uh you know, tax reporting requirements, this is probably gonna make your life a little bit easier. Um Yeah, the introduction of this new 10 99 D A form uh specific to the crypto industry for the digital asset industry. Uh I can't, I haven't seen the full form yet. The, you know, actual details are still uh you know, they're mostly just described, not specific, I too far I've seen. Um but just the fact that there is a crypto specific form is going to solve, you know, a lot of issues right back in like 2017, 2018, 2019. Uh we had this uh almost annual light clock work, you know, series of articles on, you know, my crypto exchange file the wrong tax form and the IRS wants to audit me now. So clarity here can only be good for decentralized exchanges and platforms that already have to meet tax reporting requirements and are now just getting clarity as to, you know, what types of taxes they are required, whether, you know what they, you know, Demi exemptions are if there are any and what they have to do for the decentralized platforms. Again, this is where things are going to be a little bit more tricky, I think, you know, there is a comment period. So it's not like, you know, they're gonna have to just roll over and accept it right now. They can weigh in and say, here's why it's unworkable. But as is, I think a lot of these decentralized platforms might have a lot more difficulty just because, you know, a lot of people don't use decentralized exchanges with an eye toward, you know, filling out KYC forms and all the address stuff and, you know, being able to meet travel rule requirements and all that stuff. So we'll see how that goes. All right, you've read the 300 pages. This information has only been out for about 50 minutes. Uh, any standout information you'd like to highlight or any other key takeaways we didn't touch on. I will say, you know, this is something I've been following since 2021. You know, it's been actually exactly two years. Uh August 2021 is when this bill was first introduced. And, you know, to a lot of great controversy. Um, the proposal itself, I, I think it seems, you know, fairly, you know, well thought out, right. We've seen rush rulemaking before. This doesn't seem to be it. There, there's a lot of thought put into, you know, some of the details here. Not all of it, of course is, you know, I, I imagine you're gonna see a lot of developers kind of disagree with that or say that, you know, it's still unworkable, but I think that's a separate question from whether or not they've put thought into it and the fact that they are, you know, actively seeking recommendations for how to address the privacy concerns and things like that, um this is probably, I think, you know, one of the better deals that the crypto industry is going to get. So, um you know, I'm really curious what the public feedback is gonna be the general public, by the way, has until October 30th to provide that feedback, they can weigh in on this rule proposal. Um So I'm curious to see what that will look like and what, you know, if there are any proposed solutions or alternatives, what those look like as well. All right, Nick, thanks so much for joining the show and unpacking that for us. Now, we, we got the Cole's notes on those 300 pages. So, thank you for that and have a great weekend there. You that was Coindesk global policy and regulation. Managing editor Nick Day. Don't forget to sign up for the state of crypto newsletter on coindesk dot com.

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