The United States Government Accountability Office (GAO) warns that “limits on third party information reporting to the IRS is an important factor contributing to the tax gap, which is the difference between taxes legally owed and taxes actually paid”.
The United States Department of the Treasury and the Internal Revenue Service (IRS) have jointly released a proposed set of cryptocurrency regulations requiring brokers to report gains and losses incurred during the sale of cryptocurrency and digital assets.
A statement released on September 5 by the Office of Advocacy of the US Small Business Administration reveals that the proposal was released on August 29. It explains:
“The proposed rules would require digital asset brokers, including trading platforms, payment processors, and certain hosted wallet providers, to report gross proceeds for all sales or exchanges of digital assets starting on January 1, 2025. In certain circumstances, brokers would also be required to provide gain or loss and basis information for sales that take place on or after January 1, 2026.”
A document shared over the Federal Register states that while digital assets have been lauded by proponents for their lower transaction costs and faster transaction speeds, the pseudonymity provided by distributed ledger technology “creates a significant risk to tax administration”. The document notes the increasing use of digital assets in traditional finance. It pointed out how taxpayers can now buy and sell digital assets directly or invest in digital assets through investment funds and can trade derivatives – including futures and option contracts – on digital assets. Investors are also now able to trade in tokenized stock and security interests alongside non-fungible tokens (NFTs) on digital assets platforms.
The United States Government Accountability Office (GAO) warns that “limits on third party information reporting to the IRS is an important factor contributing to the tax gap, which is the difference between taxes legally owed and taxes actually paid”. Last month, the agency released a report calling attention to the need for tighter regulations where cryptocurrencies were involved.
Blockchain technology—like #cryptocurrency—could offer faster, cheaper financial transactions. But recent price crashes & bankruptcies have raised concerns about gaps in federal regulations that could put consumers at risk. Our new report & video explore: https://t.co/1vyIgZVaYi pic.twitter.com/nxHrk1g5dQ
— U.S. GAO (@USGAO) July 24, 2023
The GAO stated that a regulatory gap could be traced back to the spot markets for nonsecurity crypto assets and added that “by designating a federal regulator to provide comprehensive federal oversight of spot markets for nonsecurity crypto assets, Congress could mitigate financial stability risks and better ensure that users of the platforms receive protections”.