U.S. Senators Urge Treasury and IRS for Swift Cryptocurrency Tax Rule Implementation

A group of seven U.S. Senators, including prominent figures Elizabeth Warren and Bernie Sanders, submitted a letter to Treasury Secretary Janet Yellen and IRS Commissioner Daniel Werfel. This letter voiced the Senators’ concerns regarding a significant delay in implementing a proposed rule concerning tax reporting requirements for cryptocurrency brokers. The rule, designed to bridge a substantial cryptocurrency tax gap, has seen a two-year delay, pushing its effective date to 2026 for transactions occurring in 2025.

The proposed regulation is a response to the growing crypto tax gap, which, as of 2022, was believed to cost the IRS around $50 billion annually. This loss stems from either consumers’ lack of understanding regarding crypto transactions’ tax implications or deliberate tax evasion by malicious actors. By instituting reporting requirements for crypto brokers, the rule aims to provide both crypto users and the IRS with essential information to ensure accurate tax reporting and collection.

The proposed rule outlines a broad definition of “brokers” to include any party facilitating cryptocurrency sales while having knowledge about the seller and the transaction. It also defines “digital assets” as a “digital representation of value” recorded on a cryptographically secured distributed ledger or similar technology. These definitions are in line with the language contained in the Infrastructure Investment and Jobs Act, providing a legal basis for the proposed regulations.

The Senators expressed their alarm over the self-imposed two-year delay in implementing the rule, arguing that this postponement contradicts the directives of the bipartisan Infrastructure Investment and Jobs Act. The delay could potentially lead to a significant loss in tax revenue, estimated to be billions of dollars in the initial years of implementation, according to the Joint Committee on Taxation. Moreover, the delay offers an extended window for crypto industry lobbyists to undermine the administration’s efforts to establish basic reporting requirements, at a time when there’s already opposition to the recently enacted reporting mandates.

Senator Warren highlighted the broader implications of the delayed rule on October 11, referring to cryptocurrency as a “not-so-secret financial weapon” used by Hamas amidst its conflict with Israel. The urgency for implementing crypto tax rules also ties into global concerns regarding the misuse of cryptocurrencies for illicit activities.

In light of the concerns raised, the Senators urged the Treasury Department and the IRS to expedite the implementation of the proposed rule to uphold tax law integrity, ensure clarity for law-abiding taxpayers, and secure crucial tax revenue from a largely unregulated crypto sector. They have requested an update on the efforts towards this goal by October 24, 2023.

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US Treasury Department Concerns NFTs Crime of Money Laundering

The growing popularity of the representation of digital artworks as high valued Non-Fungible Tokens (NFTs) is now a red flag where the United States Treasury Department believes they could be a very vital tool for money laundering. 


According to a new “Study of the facilitation of money laundering and terror finance through the trade in works of art” as conducted by the Treasury Department, the claim that money launderers can hide behind NFTs to move large sums of money is very high.

“The emerging online art market may present new risks, depending on the structure and incentives of certain activity in this sector of the market (i.e., the purchase of NFTs, digital units on an underlying blockchain that can represent ownership of a digital work of art),” the report reads. 

NFTs became more popular in the past 2 years as collections like CryptoKitties and Bored Ape Yacht Club (BAYC) started pricing at very huge valuations. While legacy NFT marketplaces like OpenSea have hit monthly transaction values upwards of $4 billion, showing how well collectors inject liquidity into the market, it is not uncommon for NFT artworks to price in millions of dollars. Blockchain.News reported in March 2021 that Beeple’s “Everydays”, a collage of the artists’ work for 5000 days sold for $69 million in Ethereum.

With huge valuations like this possible, the Treasury department argues that someone that has laundered some funds can easily use it to purchase an NFT to an unsuspecting seller and resell it to obtain clean cash. That transactions like this can take place Peer-2-Peer (P2P) even makes them untrackable, another concern the regulator has.

While traditional auction houses have started hosting NFT-focused auctions, the department believes they may not have the requisite technical knowledge to conduct the right verifications.

“Moreover, traditional industry participants, such as art auction houses or galleries, may not have the technical understanding of distributed ledger technology required to practice effective customer identification and verification in this space,” the report said.

With the focus on NFT now, the emergence of new regulations to crack down on the space in the mid to long term will not come as a surprise.

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The Rise of Crypto is Not a Threat to the US Dollar, says Treasury Executive

Veteran U.S. Treasury Deputy Secretary Adewale “Wally” Adeyemo is unperturbed that the growth of digital currencies like Bitcoin (BTC) is a threat to the dominance of the U.S. Dollar.

Adeyemo is optimistic that the current path the U.S. economy is charting through the signing of the Infrastructure Bill will help keep the Dollar’s dominance intact.

“As our economy grows, it is an opportunity for the global economy to grow and as that happens, the dollar will remain the dominant currency in the world as well,” 

The Treasury Executive says despite the potential benefits that digital currencies brandish, some risks are often attached to their adoption and usage. However, he believes the risks can be curtailed by collaborating with regulators in other countries to help reduce the chances of using them for illicit transactions.

“We know that digital assets have the ability to be used by those who want to illicitly move money through the system in a way that doesn’t touch the Dollar and that we can’t see as easily. But we do think that ultimately working together with countries around the world, we can address this risk by calling on the creators of digital assets to follow the rules around anti-money laundering more closely,” he said.

Another clear major threat of using digital currencies, which according to Adeyemo, involves Central Bank Digital Currencies (CBDCs), is bypassing sanctions levied by the American government. 

According to the International Monetary Fund (IMF), about 110 economies are actively developing CBDCs, with Russia amongst the pack. In fact, the Kremlin has announced plans to launch a pilot test for its digital Ruble in 2022, after which it will decide whether to launch the new form of money officially. 

Adeyemo noted that even though “a digital ruble or other digital currencies come into place, there will still be scope for our sanctions to have an impact on their economies simply because the global economy is still inter-connected.”

The robust nature of the U.S. economy and the Dollar’s relevance in global transactions have made the world’s reserve currency shielded from the various risks the advent of cryptocurrencies presents.

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SEC expected to head U.S. regulation of stablecoins

United States regulatory bodies have reportedly agreed that the Securities and Exchange Commission will lead the U.S.’ efforts to regulate the stablecoin sector.

According to a Tuesday Bloomberg report citing anonymous sources “familiar with the matter,” the SEC has reached an agreement with other U.S. agencies to take the reins on proposing legislation and overseeing the stablecoin industry.

The sources add that the SEC’s newfound “significant authority” over the sector will be formally announced in the Treasury Department’s forthcoming stablecoin report that is scheduled to be published this week.

The report will also clarify the regulatory jurisdiction of the Commodity Futures Trading Commission and the Treasury Department with regard to stable tokens.

The Treasury’s report was announced during a meeting of The President’s Working Group for Financial Markets (PWG) in July, with the PWG stating its intention to explore creating a new type of banking charter for stablecoin issuers among other regulatory measures at the time.

The PWG comprises representatives from top U.S. regulatory agencies, including Treasury Secretary Janet Yellen, SEC Chair Gary Gensler, Federal Reserve Chair Jerome Powell and acting CFTC head Rostin Behnam.

Bloomberg’s sources claim that Gensler has been pushing for further expansion in the SEC’s regulatory domain over stablecoins, including allowing the commission to pursue enforcement actions against issuers. Gensler also reportedly sought to clarify what powers the SEC has to oversee stablecoin-based investment transactions.

The report is also expected to call on Congress to enact similar regulations to those overseeing bank deposits for the stablecoin sector.

Related: US Treasury says it must ‘modernize and adapt’ to digital currencies

Last month, Gensler called on Congress to assist the SEC and CFTC in regulating stablecoins, with Gensler likening the dollar-pegged assets to “poker chips at the casino.”

The stablecoin market has seen significant growth in 2021, and the market capitalization of leading stablecoin issuer Tether (USDT) has exploded this year, with its market cap growing by 229% since the start of the year to sit at $69.5 billion.

Second-ranked USD Coin (USDC) has also seen meteoric growth, with its capitalization growing 706% year-to-date to tag $32.52 billion as of this writing.