As a way to curb tax evasion that happens within the cryptocurrency market, the U.S. Treasury finalized a ruling on Friday that mandates every cryptocurrency broker, exchange, and payment processor dealing with the cryptocurrency market to disclose the details relating to the sale and exchange of digital assets that happen through their platform to the Internal Revenue Sevice.
Let us look more closely at the details regarding the ruling and the key background information essential to formulate a conclusion regarding the new decision by the Treasury.
First of all, let us look at the previous engagements between the IRS and the Cryptocurrency market entities.
The IRS and the Crypto Currency Market.
Many of the Federal agencies have in the past tried to regulate the finances of many cryptocurrency firms.
Just during the last few years, we could feel the friction between the US. Securities and Exchange Commission and other crypto companies like Binance, Coinbase, and FTX among others.
The IRS had not been given the power to oversee the transactions of the cryptocurrency market on a larger scale and almost always relied on summons in order to get the details of each transaction that they seemed to take an interest in.
The constantly changing crypto market was another aspect that made the regulation of the space much more challenging.
This lack of regulatory power was always something that the Treasury Department, IRS, and many other regulatory agencies tried to rectify.
In the next section, we will look at the details regarding the impact it is set to have in the crypto market space.
Details and impacts of the new ruling
The new ruling which was passed on Friday is set to go into effect starting in the year 2026 and would require cryptocurrency exchanges and payment processing firms to report all the necessary information regarding their sales and trades directly to the IRS and give a copy of their financial statements to their users to be used for tax filing purposes.
Furthermore, The rule also specifies a $10,000 threshold that has been put forward for any transactions that involve stablecoins.
The final rule was however not put out without having to undergo a few modifications due to the pressure from lobbyist groups who stood against the bill from its initial proposal.
While the IRS has specified the new rule to be a new form of tax it did however point out that in many instances a lot of the cryptocurrency investors have always owed a lot of unrealised taxes to the IRS.
The new move is expected to help prevent tax evasion by regulating the accessibility for many individuals to the unregulated transaction mechanisms that were exploited owing to the anonymity that the public address-linked transaction method offered to them.
The new ruling has also been presented as a way to simplify the tax filing process for a lot of cryptocurrency traders and token holders.
It justified so by talking about the introduction of a much more efficient system to help in determining and filling the forms relating to the payment of taxes owed to the IRS without relying on inefficient and inaccurate number estimates by third-party service providers.
As of now, the new ruling has only put the activities of the centralized exchange transaction and centralized cryptocurrency entities. The peer-to-peer transaction model that decentralized exchanges use is yet to be put under such a reform.
The Treasury Department has added that it will soon be considering putting up a similar ruling that can also be applied to the decentralized platforms that work in the crypto market.
Response from the Community and other related entities towards the ruling
The larger cryptocurrency industry in response to the proposal had put out a comment letter campaign to reduce the requirement for the brokers criticising the lack of specificity and vagueness that the initial proposal entailed.
Even with the new reforms streamlining the way to fill the takes with the IRS it has still not been widely accepted by the community in a positive manner.
Final Thoughts
From what we can gather from the recent rulings by the U.S. Treasury Department regarding the regulation of the crypto market we can see that the move is bound to build a lot of restrain and pushback from the crypto community as a whole against its execution.
The new rules despite being put forward with the offer to ease out the hectic tax filing process that crypto investors and token holders go through the rulings have yet to be accepted by the wider community due to their restricting nature in the ecosystem.
It is to be seen firsthand how the Treasury Department and the IRS will respond to the pressure from multiple lobbyists and other individuals who oppose the ruling and if they will be open to further negotiations.
