Legislators from the House of Representatives voted on February 26 to reverse a controversial tax rule that requires “custody agents” to collect and report user data to Income service (IRS), the federal agency that enforces tax legislation in the United States.
During last week’s marking session, House Ways and Means Committee Voted 26 to 16 to promote one resolution From rep. Mike Carey (R-OH) cancellation of the IRS reporting rule, which was completed at the end of last year. A rule Carey claimed would “overwhelm” IRS with shapes.
“We have to take this resolution to avoid this nightmare for US taxpayers and for the IRS, while ensuring that the United States is actually able to lead the world in innovation with digital assets and in the crypto sector,” Carey said.
Ohio-Republican introduced the legislative action together with Senator Ted Cruz (R-TX) in February after IRS’s transition to end The highly criticized tax reporting rules.
An unpopular tax
Approved On December 5 and which would come into force in 2027, the IRS Regulation would extend existing reporting requirements to include decentralized exchanges and require brokers to reveal gross income from digital asset sales, including – decisive – information on taxpayers involved in the transactions.
Specifically, the IRS said it would require “Defi brokers” to act as traditional securities brokers, who must gather information about their users’ business and send their customers “form 1099 tax returns” to complete.
“The IRS stretched its directives from Congress in the Infrastructure Act 2021 to adopt a Cryptocurrency agenda and regulate unnecessary suppliers Digital wallets” mentioned House Ways and Means Committee Chairman Jason Smith (R-MO) before Wednesday’s vote for cancellation resolution.
He added, “It is not only unfair, but it is uncommon. Defi brokers do not even collect the information from users needed to implement this rule. “
Rope. Carey’s resolution will now go to the entire House of Representatives for a vote. If it goes over it will then move to the Senate and finally to President Donald Trump In order to either veto or log in to Lag-in which case, based on the president’s pro-digital asset sector, it would almost certainly be approved.
Objections and praise
Following the IRS introduction of the revised 1099-DA form, many industrial figures were critical of the new reporting requirements, especially the practice of Defi Brokers must record the “name and address of each customer” – a level of openness that the sector is not known.
On the same day, the new rules, Defi Education Fund, Blockchain Association and Texas Blockchain Council – three industry advocates and lobbying organizations were published – three. joint trial against the IRS and the Department of the Treasury.
“During the rule’s comment period, the public warned the IRS and the Treasury to proceed with the rule would hug the digital asset industry. But the government ignored this feedback and left the digital asset sector with a rule that sets illegal compliance loads on software developers that build so-called “trading front-end services.” This midnight rule will stifle innovation and burden American entrepreneurs – if it stands, “Blockchain Association argued In the press release, the suit announces.
Despite the industry protests and moods, this week’s cancellation resolution was not met with universal approval.
Ranking Member of House Ways and Means Committee, Rep. Richard Neal (D-Ma), defended IRS reporting ruleClaims that the cancellation of it would weaken the Tax Administration and allow digital asset investors to avoid reporting their revenue.
“The bill before us will cancel sensible and important regulation of the Ministry of Finance, which ensures that taxpayers fulfill their tax liability obligations and not skirts about the law by selling cryptocurrency without reporting the profits. It’s really that simple, ” mentioned Neal.
“By canceling this regulation, our Republican colleagues allow taxpayers to RAIDA FISC with another $ 4 billion. And make no mistakes with it, the bill is unpaid for. ”
He went on to suggest that it was typical of Republican efforts to weaken the IRS and said: “I do not think we should be surprised that our Republican colleagues today weaken the tools that the IRS must execute tax laws, they are the party that has consistently has underflowed the IRS.”
IRS V Digital Currency
In recent years, the IRS has increased its efforts to crawl the digital asset space within US tax frame.
In January 2024, Changed Tax Rules in the Law by former US President Joe Biden 2021 – as part of a two -party infrastructure proposal –Get in effectThat requires many digital asset transactions worth more than $ 10,000 to be reported to the IRS.
Taxpayers had previously been required to report transactions for digital assets on their federal income tax returns, but Changed section 6050i in the tax code Added reporting requirements that are traditionally associated with Cash transactionssuch as the sender’s name, address and social security number.
A few months later, in April 2024, IRS revealed its first draft tax Form 1099-Da“Digital access continues from brokers transactions”, which gives members in the public 30 days to provide feedback and input.
During the draft, anyone who is considered a digital asset broker must prepare form 1099-da for each customer who sells or exchange digital assets and then submits the form to customers and IRS.
The draft was based on a the notice of proposed regulations Posted in the federal register on August 29, 2023 by the US Treasury Department. In it, the Treasury abandoned to digital assets, Non-fungible tokens (Nft) and Stablecoins are all reportable, and digital asset brokers, including exchanges and payment processors, must tell the IRS about users’ trading in digital assets.
On June 28, 2024, the IRS issued its ”Final regulations“To require storage brokers to report the sale and exchange of digital assets, including Cryptocurrency. These brokers included storage operators for digital asset trading platform, some digital assets that are coughing wallets, digital asset kiosks and certain processors with digital asset payments.
Due to a certain amount of industry and political counter -reaction, a few months later, IRS Published A revised version, which aims to offer more “ease and clarity” to tax files with digital asset investments, which omit certain requirements from its previous iteration, including a requirement for files to submit their digital assets addresses and transaction -ID.
These final regulations Did not Include the reporting requirements for brokers “that do not take possession of the digital assets sold or exchanged”, such as decentralized exchanges and non-care brokers, with IRS saying that it intended to provide rules for these brokers in another set of rules.
On December 27, these rules finally arrived, but rather than providing different reporting rules released the IRS New rules simply classify certain defi exchanges as brokers if they facilitate the exchange or sale of digital assets – whether it is Smart contracts or other means – and exercise adequate control or impact on the transaction process.
This mainly placed these platforms under the same obligations required by custody agents, for example that they require them to reveal information about taxpayers involved in digital asset transactions and report their gross income from digital asset sales.
The new reporting rules will enter into force in 2027, and the IRS estimated that between 650 and 875 Defi brokers and up to 2.6 million taxpayers would be affected.
“Defi service providers use distributed Ledger Technologies to offer investments and other financial services, similar to those provided in the securities industry by securities brokers and exchanges, which allow customers to carry out business with digital assets using Applications“Pronounced the IRS document.
But from Wednesday’s house and means committee mark it is uncertain about Form 1099-Da And the new reporting rules associated with it will ever see the light of day, at least in their current form.
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