• The US Treasury and IRS continue to view cryptocurrency tax guidance as a ‘priority.’

  • The Treasury and the Internal Revenue Service (IRS) have reiterated their intention to tax cryptocurrency guidance.

    On Thursday, the agencies released their Priority Guidance Plan for the fiscal year 2021-2022, and designing brokerage rules for cryptocurrency is still on the list. One such priority is detailed in the Tax Administration section of the document as “Regulations regarding information reporting on virtual currency under 6045.”

    Under the Tax Administration section, the previous year’s guidance plan also listed “Proposed regulations regarding information reporting on virtual currency under 6045” as a priority.

    Brokerage reporting is covered in Rule 6045. There is currently no unified regulation for virtual currency tax reporting exchanges. Though the burden of reporting ultimately falls on the individual, traditional exchanges are required to send forms to users and the IRS outlining the year’s trading activity, making it easier for the consumer to report their trading activity to the tax watchdog. This isn’t the case for cryptocurrency yet, though some exchanges do send 1099 forms when possible.

    The IRS has been steadily improving its crypto-related tools, recently requesting an additional $32 million to boost its crypto and cyber operations in its fiscal year 2022 budget report. According to IRS Commissioner Charles Rettig, reducing crypto misreporting could help close the tax gap, or the unreported sums of taxable funds.

    The IRS has repeatedly stated that more clarity on crypto broker reporting is on the way, but it is unclear when this guidance will be released. Many people believe the IRS will require cryptocurrency exchanges to use Form 1099B because, unlike other types of 1099 forms, it tracks the cost basis of the assets, which is important for calculating capital gains and losses. However, this guidance has yet to be implemented, and the agency is now transferring the priority to this year’s list.

    The recent infrastructure bill passed by the United States Senate casts even more doubt on who qualifies as a “broker” in the crypto context. Without additional clarity from the IRS, this could make tax codes even more ambiguous for those looking to report their digital assets. The IRS will have to define who qualifies as a broker as it drafts guidance under Rule 6045. The Treasury claims that the definition will only apply to trading platforms in the coming guidance.

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