U.S. Will Likely Lose Billions Due to Unacceptably Long Delay for Digital Asset Reporting Requirements

By Chye-Ching Huang

After an unacceptably long delay, Treasury today issued proposed rules on new statutory digital asset broker reporting requirements. The proposed rules defer full implementation of these statutory requirements until 2026, two years later than the statute expressly required. The law, enacted on a bipartisan basis, requires that brokers of digital assets undertake the same kind of reporting on these assets as already happens for stocks, bonds, and certain commodities. This reporting can help investors to comply with the tax law, and the IRS to administer it efficiently.

The two-year delay for the rules going into effect is a disservice to what appear to be generally robust and carefully crafted guidelines, increasing the chances they are never implemented and enabling lawlessness for digital assets in the meantime. That’s because:

• Treasury and the IRS will now forego revenue lost to continued tax non-compliance regarding digital assets for transactions in both 2023 and 2024, likely amounting to some several billion in revenue.
• This timeline could significantly increase the chances that these provisions are further delayed or never take effect, by giving lawmakers who are seeking to undermine the law additional opportunities to do so. The work crafting careful regulations will be wasted if the law never comes into effect.

Treasury and the IRS had other options to implement digital asset broker reporting in a timely way while still giving opportunity to receive input and build out systems.

Treasury and the IRS should now do a better job in shepherding the implementation of other new statutory tax compliance requirements that can increase certainty for taxpayers and support voluntary compliance, without the need for further audits. This includes information reporting for “gig” companies and other platforms, as well as requirements under the IRA.

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