The US Treasury Department recently revealed a proposal outlining new tax rules for the cryptocurrency industry.
Among the updates is the introduction of a 1099 form for crypto transactions. The new guidelines also clarify tax obligations for digital asset miners.
The proposed bill appears to exempt miners while potentially impacting cryptocurrency exchanges, causing backlash from the industry, especially decentralized finance (defi) professionals.
A tailored tax form
The proposed regulations come as a response to the 2021 Infrastructure Investment and Jobs Act, aiming to clarify tax reporting requirements for the rapidly evolving crypto sector.
The document, released on Aug. 25, outlines the responsibilities that centralized crypto exchanges, payment processors, hosted wallet providers, and some decentralized exchanges will have regarding reporting obligations.
The proposal mentions introducing a tailored tax form, known as the 1099-DA, specifically designed for crypto transactions that aim to streamline the reporting process and address the confusion surrounding the suitability of existing tax forms for cryptocurrencies.
Another issue the proposal highlights is the definition of a “broker” within the crypto industry. The definition encompasses digital asset trading platforms, payment processors, hosted wallet providers, and entities that regularly facilitate the redemption of crypto tokens.
Crypto analyst Miles Deutscher was among the many critics who blasted the new rules.
The proposal exempts miners from reporting obligations but not defi platforms. This could potentially lead to Uniswap, 1inch, Curve, MetaMask, and others being classified as brokers and being required to integrate KYC procedures.
Proposed bill faces criticism
Deutscher isn’t the only one scrutinizing the bill.
Defi Education Fund CEO Miller Whitehouse-Levine expressed concerns about the proposal’s broad scope, calling it “confusing” and “self-refuting.”
Critics also noted that services like Metamask, decentralized exchanges like Uniswap, and multi-signature smart contracts might be subject to these reporting norms, necessitating new client identification regulations.
Kristin Smith, CEO of the Blockchain Association, emphasized the importance of tax compliance in digital asset transactions. While recognizing the potential benefits for crypto users, she urges careful implementation of tax laws to account for the unique characteristics of the cryptocurrency ecosystem.
House Financial Services Committee Chairman Patrick McHenry accused the Biden administration of jeopardizing the digital asset industry through its newly proposed crypto tax regulations. He criticizes the proposal for its lack of clarity and insists on the need for explicit, narrowly defined, and tailored rules.
What’s next
The Treasury Department has opened the floor for public comments until Oct. 30 and has scheduled public hearings for Nov. 7 and 8.
Industry stakeholders and experts can voice their concerns and provide input before the rules are finalized.