The anonymity cryptocurrencies have long offered users is under threat in the United States after the Treasury Department proposed expanded tax reporting requirements on Friday.
Under the new rules, cryptocurrency brokers including centralised and decentralised exchanges would have to provide detailed data to the Internal Revenue Service on users’ digital asset transactions and trades.
This forms part of a broader US regulatory crackdown on crypto tax evasion mandated under last year’s infrastructure legislation. The aim is to treat digital currencies similarly to stocks and bonds for tax purposes amid growing adoption.
The proposed new reporting form 1099-DA would aid crypto holders in calculating tax liabilities on transactions and close the “information gap” around digital assets, Treasury said.
However, it represents a major step towards eroding the anonymity that was originally one of crypto’s main selling points. Both centralized and decentralized platforms, as well as wallets and payment processors, would face the rules.
The requirements come from provisions in the 2021 infrastructure bill passed by Congress demanding comprehensive reporting from “brokers” of digital assets. The IRS must now define this term for the crypto industry.
The legislation estimated the rules could generate $28 billion over a decade by improving tax compliance in the opaque crypto sector. But forcing more transparency around transactions may irk some purists.
With the rules not taking effect until 2025, responsibility lies with crypto firms to start gathering more customer data. Anonymity will become much tougher as regulatory oversight rises.
For crypto backers who valued anonymity, the clampdown signifies the technology is being brought firmly into the regulatory fold as adoption advances. Loss of secrecy represents a big win for authorities.
