Prepared by Gina Lee, Senior Associate at Klug Counsel
The Treasury Department is looking to require information reporting on digital asset transactions similar to other financial instruments, such as stocks and bonds. In an April 7 speech at American University outlining the Treasury’s digital asset policy, Treasury Secretary Janet Yellen said: that “appropriate guardrails” are needed in order to safeguard against the exponential growth of new digital assets like cryptocurrencies and non-fungible tokens. Yellen emphasized the importance of having sufficient information to accurately report transactions on digital assets to the IRS, similar to how information is reported on transactions on stocks and bonds. This is in line with legislation passed in 2021 as part of the Infrastructure Investment and Jobs Act (P.L. 117-58) that classified cryptocurrencies as specified securities and, starting in 2023, will require a Form 1099-B filing, similar to stocks and bonds.
However, ambiguity remains on several aspects of digital asset transactions, such as what parties need to report the transactions and how to properly categorize the parties involved (e.g., the definition of brokers under IRC Section 6045 may be too broad and may implicate individuals such as miners or stakers who are not performing traditional broker duties to be considered as brokers).
The total market capitalization of digital assets is at around $3 trillion, with the IRS estimating $1 trillion in lost revenue, citing insufficient resources to address the issues regarding cryptocurrencies and similar technologies. The Biden administration issued an executive order in March directing a coordinated government digital asset policy. Over the next few months, Treasury and other agencies plan to produce a series of reports and recommendations regarding the treatment of digital assets.
Gina Jeyoung Lee is a Senior Associate at Klug Counsel. Gina is involved in individual and business tax planning and compliance, as well as domestic and international estate planning. Gina’s experience includes preparing and reviewing individual and business tax filings, preparing tax planning memoranda, and drafting estate planning documents. Klug Counsel represents companies, start-ups, private equity funds, family offices, and high-net-worth individuals. Through their strategic partnerships with law firms and other professional service firms in the U.S. and around the world, they are able to meet the tax and business needs of their clients in the U.S. and internationally.