US Treasury finalises crypto tax reporting rule, legal challenges for Binance continue

U.S. Treasury finalises crypto tax reporting rule, legal challenges for Binance continue

US Treasury finalises crypto tax reporting rule, legal challenges for Binance continue As a tech journalist, Zul focuses on topics including cloud computing, cybersecurity, and disruptive technology in the enterprise industry. He has expertise in moderating webinars and presenting content on video, in addition to having a background in networking technology.

The US Treasury Department has established a regulation mandating that cryptocurrency brokers, such as exchanges and payment processors, provide the Internal Revenue Service (IRS) with detailed data on users’ transactions involving digital assets.

Originating from the bipartisan 2021 Infrastructure Investment and Jobs Act, which is valued at $1 trillion, this regulation is designed to combat tax evasion in the cryptocurrency industry and is expected to produce close to $28 billion in revenue over ten years.

The implementation of the new rule will begin next year and be fully in place by the tax filing season of 2026. It standardises cryptocurrency tax reporting with the protocols used for traditional assets like stocks and bonds. After considering industry feedback, the Treasury revised the original proposal, establishing a $10,000 threshold for stablecoin transactions and making adjustments to ease the workload on brokers, and support a tiered implementation process.

The cryptocurrency sector mounted a significant response to the initial proposal, submitting over 44,000 comments. Primary concerns included the broad definition of “broker” in the proposal and potential privacy violations for crypto owners. The Treasury anticipates issuing further rules later this year, focusing on tax reporting requirements for non-custodial brokers, including decentralised cryptocurrency exchanges.

Form 1099-DA is a pivotal feature of the new regulation, crafted to assist taxpayers in determining their tax obligations and simplifying gain calculations. Brokers are now required to provide these forms to the IRS and to individuals holding digital assets, which supports accurate tax reporting. Emphasising historical tax liabilities on digital assets, the Treasury Department presents this rule as a means to ensure better compliance with existing tax laws, rather than imposing new tax duties.

Currently, the IRS mandates that crypto users report various digital asset activities on their tax returns, regardless of whether these transactions resulted in gains. Users are responsible for these calculations, with no information provided to the IRS by trading platforms.

Legal challenges and court decisions

In a related development, Reuters reported that a federal judge has ruled that the majority of a lawsuit filed by the U.S. Securities and Exchange Commission (SEC) against Binance, the world’s largest cryptocurrency exchange, can proceed. This decision, made by judge Amy Berman Jackson of the US District Court for the District of Columbia, represents a setback for Binance, which had sought to dismiss the case.

The SEC’s lawsuit, filed in June 2023, alleges that Binance and its founder and former CEO Changpeng Zhao artificially inflated trading volumes, diverted customer funds, failed to restrict US customers from the platform, misled investors about market surveillance controls, and unlawfully facilitated trading of crypto tokens deemed unregistered securities by the SEC. This ruling compounds Binance’s regulatory challenges, following a $4.3 billion settlement with the Department of Justice and the Commodity Futures Trading Commission in November over breaches of finance regulations.

However, the ruling did provide a partial victory for the broader cryptocurrency sector. Judge Jackson sided with a previous judge’s opinion that the SEC had not sufficiently demonstrated that secondary sales of Binance’s tokens – those sold by parties other than Binance on exchanges – constituted securities.

This comprehensive update highlights the evolving regulatory landscape for cryptocurrencies in the United States, encompassing both tax reporting requirements and ongoing legal challenges faced by major industry players.

(Photo by Jievani Weerasinghe)

See also: Crypto wallet downloads dropped by 26% to 100.9 million in 2023

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