Proposed crypto tax rules draw ire from industry groups

New rules proposed by the Biden administration on Friday would require cryptocurrency brokers to report information on digital asset sales and exchanges to the Internal Revenue Service (IRS) and taxpayers.

The proposal comes as Congress and regulatory agencies try to crack down on crypto tax evasion and simplify filing for taxpayers.

“This is part of a broader effort at Treasury to close the tax gap, address the tax evasion risks posed by digital assets, and help ensure that everyone plays by the same set of rules,” the Treasury Department said in a statement.

A provision in the 2021 Infrastructure Investment and Jobs Act required additional tax reporting requirements for digital asset brokers as well as clarification on the types of firms that qualify as crypto brokers.

Under the proposed rule, “broker” includes digital asset trading platforms, payment processors and certain wallet providers.

Crypto brokers would be required to provide a new Form 1099-DA to the IRS and digital asset holders to assist with tax preparation starting in 2026, covering 2025 sales and exchanges. 

Cryptocurrencies like bitcoin and non-fungible tokens (NFTs) are covered under the rule, as are certain real estate purchases made with digital assets.

This would make it easier for customers to accurately calculate and report their crypto assets, Treasury said.

Not everyone believes the proposed rules are a silver bullet. Sen. Elizabeth Warren (D-Mass.) criticized the bill, saying it didn’t go far enough.

“After years of delay, Treasury’s proposal falls short of Congress’ intent under the law. A strong rule is essential to prevent wealthy tax cheats from hiding income in digital assets, and one should be implemented by the end of the year,” Warren said in a statement.

The definition has drawn criticism from some crypto industry groups, who argue the rules are too broad.

“While it is encouraging to see that participants validating transactions through mining or staking are exempt from tax rules, the proposed definition of ‘broker’ appears to still be overly broad and potentially captures a lot of participants who have no practical way to comply,” Ji Kim, head of global policy at the Crypto Council for Innovation, told The Hill in a written statement.

The Blockchain Association reported lobbying on a bill introduced by Sen. Ted Cruz (R-Texas) that would repeal the broker definition and reporting requirement provision, according to the group’s second-quarter federal lobbying disclosure. 

“It’s critical to ensure that participants transacting with digital assets pay their taxes. If done correctly, these rules could help provide everyday crypto users with the necessary information to accurately comply with tax laws,” Blockchain Association CEO Kristin Smith said in a statement.

“However, it’s important to remember that the crypto ecosystem is very different from that of traditional assets, so the rules must be tailored accordingly and not capture ecosystem participants that don’t have a pathway to compliance.”

–Updated at 1:32 p.m.