U.S. Poised To Get Tougher On Crypto Investments

Written by Alicea Castellanos | Posted in U.S. Policies On Cryptocurrency

U.S. agencies and lawmakers are finally shaping policies concerning cryptocurrency. The result could change investors’ options significantly.

Cryptocurrency has offered a lot to investors – including sky-high returns amid a lack of regulation. In what experts claim might stabilize crypto’s market and protect its investors, the digital asset’s Wild West days may be ending in the U.S.

Right now, regulatory control differs across American federal government agencies; cryptocurrency is treated as “property” for tax purposes, resembling in many ways stock. Some say cryptocurrency reporting also resembles a Foreign Bank Account Report in that both are priorities for IRS attention and both require care in reporting.

Yet IRS guidance remains limited concerning crypto even as the agency seems convinced that virtual currency transactions are an under-reported and potentially significant source of federal tax revenue.

(The latest draft of the federal 1040 Individual Income Tax Return for 2022 greatly expands the previous form’s question on cryptocurrency transactions, with an eye to gathering information on digital assets besides cryptocurrency, such as non-fungible tokens.)

Policies and laws forming

The U.S. government is trying to streamline its approach to digital assets. The Federal Reserve has been exploring issuing a central bank digital currency, and this spring the Biden administration issued an executive order requiring various agencies to produce reports this fall relating to cryptocurrency regulation. These agencies will include the Treasury, the Attorney General, the Commerce Department, Homeland Security and National Intelligence, among others. The order also stresses eventual cooperation with foreign governments and agencies.

Not long after the President’s order, the Securities and Exchange Commission announced that it plans to register and regulate crypto exchanges and will sharpen its attention on investor risk.

Bipartisan lawmakers have also recently introduced detailed bills regarding digital assets:

· The Lummis-Gillibrand Responsible Financial Innovation Act aims to create the first comprehensive regulatory framework of digital assets in the U.S. The Act covers much-lacking definitions as well as taxes, securities, commodities, consumer protection, payments and stablecoins, banking laws and interagency coordination. The objective: “regulatory clarity” across agencies to fold crypto and digital asset regs into existing U.S. tax and banking laws.

· The Digital Commodities Consumer Protection Act of 2022 aims to give the Commodity Futures Trading Commission the lead in overseeing the two largest cryptocurrencies (bitcoin and Ethereum) and online platforms, such as Coinbase, where they’re traded.

The IRS also has a page devoted to tax issues of cryptocurrency.

“Regulators in the United States have thus far focused their attention and enforcement efforts on unregistered securities offerings, and fraudulent scams,” reads the Thomson Reuters report Crypto on the Rise 2022. “With investor protection and risk disclosures as core tenets, stricter advertising regulations surrounding cryptos are likely inevitable.”

If you deal in any way with crypto, questions your tax specialist should be able to address include:

· How we navigate tax issues in a market that’s still operating on rudimentary guidelines and regulation in the U.S.?

· Where do evolving technologies such as non-fungible tokens (NFTs) fit into our tax picture?

· When many new and previously non-financial players enter the market (as in crypto), what steps do we take to protect you, the client?

Your tax specialist needs to be able to field these and many other questions in this changing market. If we can help, please let us know.

Have a question? Contact Alicea Castellanos, Global Taxes LLC.

Alicea Castellanos

Alicea Castellanos is the CEO and Founder of Global Taxes LLC. Alicea provides personalized U.S. tax advisory and compliance services to high net worth families and their advisors. Prior to forming Global Taxes, Alicea founded and oversaw operations at a boutique tax firm, worked at a prestigious global law firm and CPA firm.

Alicea specializes in U.S. tax planning and compliance for non-U.S. families with global wealth and asset protection structures which include non-U.S. trusts, estates and foundations that have a U.S. connection. She also specializes in foreign investment in U.S. real estate property, and other U.S. assets, pre-immigration tax planning, U.S. expatriation matters, U.S. persons in receipt of foreign gifts and inheritances, foreign accounts and assets compliance, offshore voluntary disclosures/tax amnesties, FATCA registration, and foreign companies wanting to do business in the U.S.