The Treasury and Internal Revenue Service (IRS) have reiterated their intention to tax issue guidance on cryptocurrencies.
The agencies released their Priority Guidance Plan for the 2021-2022 fiscal year on Thursday, and designing brokerage rules for crypto still makes the list. The Tax Administration portion of the document details: "Regulations regarding information reporting on virtual currency under §6045," as one such priority.
The previous year's guidance plan also listed "Proposed regulations regarding information reporting on virtual currency under §6045," as a priority under the Tax Administration section.
Rule §6045 contains guidance on brokerage reporting. As of now, there is no unified regulation for exchanges related to virtual currency tax reporting. Though the reporting burden ultimately falls on the individual, traditional exchanges must send forms to users and the IRS delineating the year's trading activity, making it easier for the consumer to report their trading activity to the tax watchdog. This is not yet the case for crypto, though some exchanges do send 1099 forms when possible.
The IRS has been steadily beefing up its tools surrounding crypto, requesting an additional $32 million to boost its crypto and cyber operations in its recent budget report for the fiscal year 2022. IRS chief Charles Rettig has indicated that quelling crypto misreporting could be helpful in closing the tax gap, or the unreported sums of taxable funds.
The tax agency has continuously said additional clarity surrounding crypto broker reporting is coming, although it remains unclear when this guidance will be released. Many are expecting the IRS to mandate exchanges to report using Form 1099B, since unlike other types of 1099 forms, it tracks cost basis of the assets — a key to calculating capital gains and losses for crypto. However, this guidance has yet to materialize, and the agency is now rolling over the priority to this year's list.
The recent infrastructure bill out of the U.S. Senate further clouds who qualifies as a "broker" in the crypto context. This could make tax codes even more opaque for those looking to report their digital assets without added clarity from the IRS. As the IRS drafts guidance under rule §6045, it will have to nail down who qualifies as a broker. As of now, Bloomberg has reported that the Treasury claims the definition will only apply to trading platforms in the coming guidance.