The cryptocurrency industry was caught off guard last week when it was revealed that the Senate’s bipartisan infrastructure bill anticipated raising $28 billion in revenue by adding new reporting requirements that would enable the IRS to collect taxes already owed on capital gains from sales of bitcoin BTCUSD, -0.60%, ether ETHUSD, -3.37% and other digital assets.
The exact text of the bill is still being negotiated, but experts tell MarketWatch that the average crypto investor who uses a centralized exchange like Coinbase COIN, -0.50% or Kraken to buy and sell crypto assets should expect the IRS to know exactly how much money they made on those transactions, if the bill becomes law.Under current law, crypto exchanges are not required to report losses and gains realized by their customers through the purchase and sale of digital assets, but the legislation being debated in the Senate will change that, meaning the IRS will know about taxpayers’ crypto income.
“There’s been a drastic underreporting of bitcoin gains, and one of the reasons is that these exchanges aren’t required to issue a report saying ‘hey, here’s your activity for the year,'” Tom Cardinale, a partner at the accounting firm EisnerAmper, told MarketWatch. “The IRS has been pushing Congress for more enforcement toward these exchanges and issuers of cryptocurrencies.”
Because exchanges will likely be required to issue their customers documentation like a 1099-B form detailing their gains and losses, it likely will not place too much burden on taxpayers to merely incorporate those figures into their annual tax filings, he said, though there will certainly be more Americans paying taxes on their crypto gains in the years to come if this bill becomes law.