Biden budget proposes plugging encryption loopholes to raise $24 billion in new revenue
Tucked into President Biden’s budget is a proposal to change the tax treatment of cryptocurrency transactions that would eliminate investors’ ability to take advantage of losses to lower their tax bills.
The new provision will raise $24 billion, according to the White House.
Currently, crypto sales are not subject to the same rules that investors in stocks or bonds must follow. Investors can sell crypto investments at a loss, take the deductible loss to reduce their tax burden, and buy right back into the same investment.
The budget eliminates this and subjects crypto to the same so-called wash sale rules that apply to stocks and bonds.
House Democrats proposed legislation last Congress to close the tax loophole, imposing the “wash sale” rules on goods, currencies and digital assets. The IRS treats crypto as property, not as a security, which is how the asset class escapes these rules.
President Biden already passed a crypto-related tax provision tucked into his 2021 infrastructure bill, causing an industry uproar. The law defined a cryptocurrency “broker” broadly, allowing the Internal Revenue Service to target crypto miners, developers and others who may be considered brokers even if they have no customers or access to information necessary to comply with tax reporting requirements. .
The Treasury Department later clarified that miners, validators and other crypto users will not be classified as crypto “brokers” under the tax reporting rules.
Biden’s proposal comes as Federal Reserve Deputy Chairman for Supervision Michael Barr emphasized in a speech Thursday at the Peterson Institute in Washington that the same regulations that protect banks should apply to crypto if the activity is analogous without stifling innovation, while warning banks to tread carefully in. the crypto room.
The Federal Reserve, the FDIC and the Office of the Comptroller of the Currency last month urged banks that use funding from crypto firms to monitor liquidity and maintain strong risk management practices to prevent runs.
The warnings come just as Silvergate Capital, one of the crypto market’s top banks, became the first crypto bank to fail after feeling ripples from FTX’s collapse that caused withdrawals of billions in deposits.
“Like everybody else, we’ve been looking at what’s been going on in the crypto space, and what we’re seeing is quite a lot of turmoil, we’re seeing fraud, we’re seeing a lack of transparency, we’re seeing that we’re at risk, we’re seeing a lot of things like that.” , Powell told lawmakers earlier this week.
“What we have done is to make sure that the regulated financial institutions that we monitor and regulate are careful and take great care in the ways they engage in the whole crypto space.”
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