Taxation

As the industry continues to develop new use cases and services that involve crypto, the number of potentially taxable activities continues to rise. Therefore, it is essential to ensure that participants transacting with digital assets pay their taxes accordingly. Unfortunately, existing language for tax compliance in certain areas is unclear, leading to a potentially significant loss in revenue for the US government and frustrating confusion for taxpayers who want to make sure they pay what they owe.

In 2014, the Internal Revenue Service (IRS) released a notice declaring that, for the purposes of taxation, digital assets would be treated as property. As a result, it is clear that general tax requirements for property transactions, including capital gains taxes, apply to digital asset transactions. Yet, there are many more complicated taxable activities for which the IRS has yet to provide clear guidance. 

Congress unfortunately added to the confusion when it enacted several provisions related to crypto taxation in the Infrastructure Investment and Jobs Act (IIJA). The IIJA amended the Tax Code in several ways that are likely unworkable, including a significant expansion to the category of people who must collect and report sensitive personal data to the IRS, even if they don’t have access to that data. Although it is certainly essential to ensure that crypto market participants pay their fair share in taxes, the IIJA failed to achieve that goal, instead creating harmful uncertainty that could injure American crypto companies and citizens alike. We support tax policy that properly recognizes the need for tailored reporting requirements and other measures to ensure tax compliance across the crypto ecosystem.