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August 25, 2023

The Treasury's Proposed Digital Asset Tax Information Reporting Rules

The Department of the Treasury has recently unveiled the anticipated regulatory framework outlining the implementation stages for tax information reporting in relation to digital assets, a legislative initiative that was ratified in November of the preceding year. As IRS is now moving forward with actions from the Infrastructure Bill for mandatory crypto tax information reporting - we are analyzing this document and will be participating in feedback to the IRS and helping our partners and customers to handle the final requirements

Our initial thoughts on the regulation:

The definition of Digital Assets is poised to be slightly broader than the statutory description, a strategic utilization of the authority bestowed upon the Secretary by the statute. This expansion is intended to encompass assets residing on private ledgers and to harmonize the definition more effectively with the conventionally accepted interpretation of virtual currency.

It has also been indicated that the implementation will be retroactively applicable to transactions transpiring after January 1, 2025. This means that tax returns for the fiscal year 2025 will necessitate adherence to the stipulated regulations, with cost basis reporting coming into force a year thereafter, impacting returns filed in early 2026.

One intriguing feature pertains to the allocation of fees associated with crypto-to-crypto trades. Specifically, fees will be apportioned evenly, at a 50-50 ratio, between the relinquished asset and the newly acquired asset. This innovative approach, although unprecedented in current practices, presents a coherent perspective.

The solicitation of public engagement is a central element of the proposal, as evidenced by the forthcoming publication of the proposed regulations in the Federal Register. Additionally, a public hearing is scheduled for November 7, 2023, allowing stakeholders to participate and express their views. In the event of overwhelming interest, a second session on November 8, 2023, will be conducted, indicative of the substantial participation envisaged.

Noteworthy too is the comprehensive call for feedback issued by the proposal. Treasury has formulated over 50 explicit questions, deliberately inviting input and insights from relevant stakeholders. Consequently, for individuals vested in this sector, the Treasury's disposition reflects a genuine interest in the contributions of the wider community.

With the Internal Revenue Service now moving forward with actions from the Infrastructure Bill for mandatory crypto tax information reporting - Ledgible is actively participating in feedback to the IRS and helping our partners and customers handle the final requirements.

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