Crypto transactions present significant challenges to the traditional tax compliance framework for taxpayers, financial institutions, and the tax authority alike. As crypto transactions rapidly innovate beyond mere holding and trading of cryptocurrencies to such areas as crypto lending and borrowing and other niches in the world of decentralized finance, there are increasing gaps in applicable tax guidance.
This white paper provides an analysis of the current state of crypto taxation in the U.S. Uncertain as it is, institutions facilitating crypto transactions will need to assess their compliance obligations under existing tax rules. This may mean implementing tax reporting (e.g., Form 1099-B reporting) for crypto trading, for example. The paper also considers IRS crypto tax enforcement efforts, the role of third-party tax information reporting and administrative and institutional challenges specific to crypto assets and platforms.
Access the full report to learn more about:
- Technology in the crypto space has been rapidly evolving beyond mere trading of cryptocurrencies to the expanding field of decentralized finance.
- Existing U.S. tax guidance which seeks to tax virtual currencies as property is a poor fit for crypto transactions, and significant gaps remain in the crypto tax regulatory framework.
- Nevertheless, the IRS is ramping up enforcement and are in the process of developing new regulations on third-party tax information reporting that will affect institutions that facilitate crypto trading and related transactions.
- Institutions and taxpayers will need to navigate uncertain tax waters until further guidance is provided by the IRS, but even ahead of such guidance, institutions may need to assess their tax reporting obligations under existing law.
- Tax authorities will need to address the borderless nature of crypto transactions and emerging technologies such as stablecoins, off-chain transactions, decentralized finance and central bank digital currencies.
As a matter of best practices, institutions that facilitate crypto transactions may need to examine their offered services to determine their obligations under existing tax reporting rules even ahead of further IRS guidance.