The Treasury Department recently signaled it intends to release a proposed rule this year to recalibrate legislation set to take effect on January 1, 2023 that would greatly increase the number of people considered brokers for tax reporting purposes, potentially adding onerous tracking requirements to a wide swath of the digital asset sector. Without potential updated guidance from the Treasury Department, the new broker rules will likely apply to a large number of entities – including those that help nonprofits accept crypto donations – that will suddenly need to collect personal information from crypto market participants and report for tax purposes.
Congress intended to cut down on tax dodging using digital assets by giving the Internal Revenue Service more insight into who is trading the asset, but the remarkably expansive new definition signed into law last November will likely capture many who have no reasonable way to access the information required to remain compliant. Unsurprisingly, the crypto business community has pressed policymakers to rework the broker rules since they were originally proposed. But while lawmakers have floated legislative fixes, none have advanced far enough to solve the problem.
The Treasury Department has signaled that addressing the requirements remains a priority and the agency intends to release its own proposed fix and seek public input before finalizing any rule. It’s unclear whether proposed changes from the Treasury Department will assuage concerns in the crypto community, however, or if changes can be implemented before would-be brokers need to begin collecting personal information from crypto investors this January.
Overly broad rules and intrusive surveillance could turn people away from this emerging asset, make it more difficult for companies to help nonprofits process digital asset donations, and complicate the issue for donors wishing to remain anonymous, all of which could hurt giving. And that’s the message Congress and the policymakers at the Treasury Department need to hear.