The US Treasury Department has proposed a raft of new rules to simplify cryptocurrency tax returns for Americans, but there are a number of areas of concern. For example, digital wallets like MetaMask or DEXs like Uniswap (UNI) will have to pass on information about their users. What exactly does this bill say?
Decentralised finance soon to be regulated in the US?
On Friday 25 August, the US Treasury Department, headed by Treasury Secretary Janet Yellen, proposed a whole raft of new rules aimed broadly at making it harder for cryptocurrency investors to avoid paying income tax, and easier for those who wish to file in good faith.
But it is the bill’s flagship measure that is causing concern: as it stands, if the law were to pass, “cryptocurrency payment processors” and crypto exchanges would be obliged to transmit information about their users to the Internal Revenue Service (IRS), the US agency responsible for collecting income tax.
More specifically, the document sets out new rules for players that the US Treasury considers to be brokers, except that this definition would also apply to decentralised exchanges (DEX) such as Uniswap or digital wallets offering to buy crypto-currencies such as MetaMask, to name but two.
DeFi ranked with “classic” investments
In other words, this type of platform – decentralised in theory – would now be subject to the same rules as a traditional broker offering shares, for example.
“These rules align the tax declaration of digital assets with that of other assets and therefore avoid preferential treatment between different types of assets. “
By doing so, investors and relevant platforms would be required to file forms about their transactions with the IRS, both for cryptocurrency investments and non-fungible tokens (NFTs).
“This is part of a broader effort by the Treasury to close the tax gap, address the tax evasion risks posed by digital assets and help ensure that everyone is playing by the same set of rules. “
According to the proposal, the bill could allow the US Treasury to capture $28 billion in taxes over a decade after its passage. Surprisingly, miners are completely excluded from the bill. Validators are not affected either
Far from being a unanimous proposal
Naturally, such a bill has sown discord within the crypto community, and more particularly among Americans, as Uncle Sam’s country is already not exactly favourable to the development of the ecosystem, as the various actions of the Securities and Exchange Commission (SEC) have shown.
Ryan Selkis, Messari’s CEO, was blunt on the subject. For him, if the Biden administration returns to power for a second term, there will simply be “no future for crypto in the U.S.”
Same tone for Republican Patrick McHenry, chairman of the House Financial Services Committee, who said in a statement:
The Notice of Proposed Rulemaking on digital asset reporting requirements is another front in the Biden Administration’s ongoing attack on the digital asset ecosystem. […] The Biden Administration must end its efforts to kill the digital asset ecosystem in the United States and work with Congress to finally provide clear rules for this industry. “
The Treasury Department and the IRS have, however, made it clear that they “recognize that some stakeholders may have concerns” about such a proposal regarding the recovery of personal information. As such, the 2 entities said they were open to dialogue and to proposing alternatives that would better respect the privacy of crypto investors.
Stakeholders in the cryptocurrency ecosystem have until 30 October to submit their objections to the US Treasury, after which public hearings will be held on 7 and 8 November to clarify and further define the project.