October 11, 2023

Warren, King, Senators Call on Treasury and IRS to to Align Crypto Industry Tax Reporting Rules with Other Financial Industries

Agencies’ Proposed Rule Will Help Close Massive Crypto Tax Gap, But Is Facing Two-Year Delay 

Text of Letter (PDF)

Washington, D.C. – U.S. Senators Elizabeth Warren (D-Mass.), Angus King (I-Maine), Richard Blumenthal (D-Conn.), Bernie Sanders (I-Vt.), Sheldon Whitehouse (D-R.I.), Brian Schatz (D-HawaiÊ»i), and Gary Peters (D-Mich.), Chair of the Homeland Security & Governmental Affairs Committee, sent a letter to Secretary of the Treasury Janet Yellen and Internal Revenue Service (IRS) Commissioner Daniel Werfel, urging their agencies to swiftly implement their recently proposed tax reporting requirements for crypto brokers after the agencies’ two-year delay in proposing the rule. 

“Although we are pleased that the Administration has proposed a strong rule that would help close the massive crypto tax gap, we are alarmed by the self-inflicted two-year delay for the rule’s implementation, which would contravene the requirements of the bipartisan Infrastructure Investment and Jobs Act,  disadvantage law-abiding Americans, and cause the federal government to lose out on billions of dollars in tax revenue. We urge your agencies to limit this troubling delay and implement the final rule as swiftly as possible, while maintaining the rule’s substance in the face of industry attacks,” wrote the senators. 

The crypto ecosystem has long needed basic broker reporting requirements, as the IRS is estimated to be missing out on approximately $50 billion a year in tax revenue from crypto sales. Treasury and IRS’s proposed rule will help law-abiding crypto users file their taxes and help the federal government crack down on tax cheats, aligning the crypto industry with every other financial industry in the United States by subjecting brokers to standard tax reporting requirements. 

The senators noted that they are particularly pleased by several elements of the proposed regulations: 

  • The rule defines “brokers” to include any party who facilitates crypto sales while in a position to know the identity of the seller and the nature of the transaction. By covering brokers who both actually know and could know basic information about the crypto trades they are facilitating, the rule properly encompasses anyone who functions as a broker—even if the broker chooses to turn a blind eye to customer information in an effort to escape regulatory scrutiny.  
  • The proposed regulation construes “digital asset” to mean “a digital representation of value that is recorded on a cryptographically secured distributed ledger (or similar technology).”  The rule’s definition of digital asset tracks the statutory definition contained in the Infrastructure Investment and Jobs Act. And because it tracks the statutory language, the rule affords sufficient flexibility to the Treasury Department and IRS to adapt its regulations in a fast-moving, constantly evolving sector.
  • The notice of proposed rulemaking indicates that the Treasury Department and IRS are working to issue a separate rule regarding Section 6045A implementation. Section 6045A regulations are critical to effectuating Congress’s directives about crypto tax reporting because they will govern the tax information that brokers must provide to other brokers and the IRS when digital assets are transferred. 

But the senators expressed significant concern regarding the timeline for the rule’s implementation. “While we applaud the substance of the proposed regulations, we are deeply concerned that the final rule will not become effective until 2026. In the 2021 Infrastructure Investment and Jobs Act, Congress unambiguously directed that the new crypto broker reporting requirements apply to all tax returns filed starting in 2024. Yet, the Treasury Department and IRS waited almost two years to issue rules regarding these requirements, making it exceedingly unlikely that the Administration will implement the rules in accordance with Congress’s directive. An additional two-year delay not only contravenes this statutory directive; it runs counter to the interests of American taxpayers and the federal government,” wrote the senators.

Senator Warren has been an outspoken advocate for regulation and oversight of crypto to rein in unchecked illegal activity and protect consumers and the safety and stability of the financial system:

  • In August 2023, Senators Warren, Bob Casey (D-Pa.), Blumenthal, and Sanders sent a letter to Treasury and IRS, urging them to quickly propose and implement strong rules that close loopholes exploited by crypto tax evaders.
  • In July 2023, Senator Warren, along with Senators Roger Marshall (R-Kan.), Joe Manchin (D-W.Va.) and Lindsey Graham (R-S.C.), reintroduced the Digital Asset Anti-Money Laundering Act, legislation that would mitigate the risks that digital assets pose to our national security by closing loopholes and bringing the digital asset ecosystem into greater compliance with the anti-money laundering and countering the financing of terrorism (AML/CFT) frameworks governing the greater financial system.
  • In July 2023, at a hearing, Senator Warren warned about the national security risks of rogue states using crypto to evade sanctions and fund their weapons programs, spying, and cyberattacks – calling out North Korea for stealing over $3 billion in crypto over the past 5 years, and using proceeds to fund its illegal nuclear weapons program,
  • In June 2023, Senators Warren and Van Hollen sent a letter to Attorney General Merrick Garland asking the Department of Justice (DOJ) to investigate the crypto exchanges Binance and Binance.US for potentially making a series of false statements to Congress.
  • In May 2023, a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren called out crypto’s role in fueling the fentanyl crisis and announced she will reintroduce her bipartisan Digital Asset Anti-Money Laundering Act, a bill that would close loopholes in anti-money laundering rules, cutting off drug suppliers and cartels from using crypto to facilitate their illegal business. 
  • In May 2023, at a hearing of the Senate Armed Services Committee, Senator Warren questioned senior intelligence officials about crypto’s threats to national security as the method of choice for countries to evade sanctions and fund weapons programs, support spying, and promote cyber attacks.
  • In February 2023, at a hearing of the Senate Committee on Banking, Housing, and Urban Affairs, Senator Warren raised concerns that key parts of the crypto industry are not subject to the same money laundering laws that cover other financial organizations, allowing financial criminals to use crypto to launder billions. 
  • On December 14, 2022, Senators Warren and Marshall introduced the Digital Asset Anti-Money Laundering Act of 2022, bipartisan legislation that would mitigate the risks that cryptocurrency and other digital assets pose to the United States’s national security by closing loopholes in the existing anti-money laundering and countering of the financing of terrorism (AML/CFT) framework and bring the digital asset ecosystem into greater compliance with the rules that govern the rest of the financial system.
  • On December 8, 2022, Senators Warren and Tina Smith (D-Minn.) sent letters to three key banking regulators to raise concerns about the ties between the banking industry and crypto firms. 
  • On December 6, 2022, Senators Warren, Marshall, and John Kennedy (R-La.) wrote to Silvergate, the bank that reportedly facilitated the transfer of FTX customer funds to Alameda Research, seeking answers about the bank’s role in the loss of billions of dollars in customer funds.
  • On November 30, 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren called on regulators to keep crypto out of the banking system following FTX’s collapse.
  • On November 23, 2022, Senators Warren and Whitehouse sent a letter to the Department of Justice requesting personal accountability for former FTX CEO Sam-Bankman Fried and any complicit FTX executives for wrongdoing following the exchange’s collapse. 
  • On November 22, 2022, Senator Warren published an op-ed in the Wall Street Journal urging federal regulators to use their expansive authorities to crack down on crypto fraud and hold the industry to the same basic standards as other financial activities. 
  • On November 17, 2022, Senator Warren, along with Senator Dick Durbin (D-Ill.), sent a letter to Sam Bankman-Fried, founder and former CEO of FTX Trading Ltd. (FTX), and John Jay Ray III, the newly appointed CEO of FTX, seeking information on the reported misuse of billions of dollars of customer funds and other disturbing allegations that continue to emerge about the company’s fraudulent and illicit practices.
  • On October 25, 2022, Senators Warren and Whitehouse and Representatives Alexandria Ocasio-Cortez (D-N.Y.), Jesús “Chuy” García (D-Ill.), and Rashida Tlaib (D-Mich.) sent a letter to the U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission, the U.S. Department of Treasury, the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau, seeking information about the steps each regulator is taking to stop the revolving door between financial regulatory agencies and the cryptocurrency industry.
  • In September 2022, Senator Warren sent a letter to Treasury Secretary Janet Yellen calling on the Treasury Department and the Financial Stability Oversight Council to build a strong regulatory framework for the crypto market.
  • In July 2022, Senator Warren and her colleagues released the findings from an investigation into seven large cryptomining companies – showing extraordinarily high energy use and climate impacts from cryptomining – and called on the EPA and DOE to take action.
  • In May 2022, Senators Warren and Smith, sent a letter to Fidelity, asking the company to explain its decision to allow Bitcoin investments for 401(k) plans, despite the Department of Labor’s warnings about 401(k) crypto investments.
  • In March 2022, Senator Warren, Senate Armed Services Committee Chair Jack Reed (D-R.I.), Senate Intelligence Committee Chair Mark Warner (D-Va.), and Senate Defense Appropriations Subcommittee Chair Jon Tester (D-Mt.) introduced the Digital Asset Sanctions Compliance Enhancement Act to ensure that Vladimir Putin and Russian elites don't use digital assets to undermine the international community’s economic sanctions against Russia following its invasion of Ukraine.
  • In March 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren highlighted the various cryptocurrency tools that could make it easier for sanctioned individuals to hide their wealth and lessen the impact of Russian sanctions.
  • In March 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren warned that cryptocurrency may allow Russia to dodge sanctions and urged stronger regulation of the crypto market to ensure that countries, drug traffickers, cyber criminals, and tax cheats can’t evade economic pain.
  • In March 2022, Senators Warren, Warner, Reed, and Sherrod Brown (D-Ohio), Chair of the Senate Banking, Housing, and Urban Affairs Committee, sent a letter to Treasury Secretary Janet Yellen, asking about the Treasury Department’s plans to enforce sanctions-compliance guidance for the cryptocurrency industry to ensure that economic sanctions remain an effective tool for achieving foreign policy goals.
  • In December 2021, during a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren raised concerns over the growing risks presented by stablecoins. 
  • In September 2021, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren called on regulators to step up to address crypto's regulatory gaps and ensure an inclusive financial system. 
  • In July 2021, Senator Warren sent a letter to SEC Chair Gary Gensler requesting information about the agency's authority to regulate cryptocurrency exchanges and protect consumers from risks posed by the highly volatile cryptocurrency market.
  • In June 2021, chairing a hearing of the Senate Banking, Housing, and Urban Affairs Committee's Subcommittee on Economic Policy, Senator Warren delivered remarks on the opportunities and risks that digital currencies present. 
  • In a June 2021 interview, Senator Warren called the market for crypto the “wild west,” and said digital currency is “not a good way to buy and sell things and not a good investment and an environmental disaster.”

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