On November 13th, 2023, the New York State Bar Association ("NYSBA") Tax Section published its recommendations on the proposed crypto broker reporting regulations ("the Report"). These proposed regulations elaborate on the 2021 changes to the Internal Revenue Code that expanded the definition of broker to include "any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person", and are discussed in detail here.
The Report recommends:
- Treasury create a "qualified digital asset reporting person" regime to streamline reporting and withholding for cross-border payments and employment contracts;
- Specific guidance on excluding certain validators and software creators from the definition of "broker";
- Treasury should consider a de minimis threshold for certain transactions before penalties for failing to comply with the broker reporting rules apply, or alternatively provide a grace period for industry participants to comply with the broker reporting rules;
- Permitting the use of the IRS TIN Matching Program for digital asset reporting in order to limit instances where backup withholding may occur, and further examining the application of backup withholding to digital asset dispositions that are not for cash;
- Clarification for decentralized exchanges, including that decentralized exchanges using immutable protocols are not treated as "brokers," and specific guidance applying the "reason to know" standard to certain decentralized exchanges that may be unable to collect taxpayer information;
- Identity/privacy tokens containing taxpayer information should be permitted for reporting purposes;
- Treasury should consider a reporting exemption for certain stablecoin transactions;
- Specific guidance clarifying whether transfers of digital assets pursuant to digital asset lending transactions are subject to information reporting;
- Specific guidance addressing whether staking is subject to digital asset reporting; and
- Treasury should reserve on reporting requirements for certain transactions involving wrapped coins, until it provides guidance on the tax treatment of wrapped coins.
The Report is available online here.
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