US Government Misses Deadline to Release Cryptocurrency Regulations

The US government is still working on regulations on third-party reporting for cryptocurrency trades. The transactions will be reported by crypto exchanges in accordance with Section 6045 of the Internal Revenue Code (IRC), a Treasury attorney said.

Cryptocurrency Exchanges Will Share Client Data as Stipulated in Section 6045

Erika Nijenhuis, senior counsel at the US Treasury’s Office of the International Tax Counsel, said in a webinar that the government was still preparing rules on third-party reporting for crypto transactions, which will oblige companies like Coinbase to report under Section 6045. The release time has been delayed after the government failed to provide clear guidance by June 2020, as initially planned.

The current version of IRC’s Section 6045 states that every broker must, when required by the Secretary, make a return and indicate the name and address of each customer, with additional details related to gross profits and other similar information.

Nijenhuis explained during a webcast held by the American Bar Association:

“That is our current focus because U.S. exchanges and other businesses play a significant role in the virtual currency transactions carried out by U.S. taxpayers. We think it’s appropriate, therefore, to focus on developing guidance for third-party reporting under Section 6045.”

Section 6045 says that brokers must file information returns on gross proceeds from the sale of covered securities, including commodities. But to this day, regulators haven’t decided whether cryptocurrencies are a commodity or not. If the government will decide to develop its new regulations around Section 6045, then crypto exchanges would share client data such as the adjusted basis, gain or loss, and whether it is long-term or short-term.

As of today, regulations under Section 6045 touch upon the sales of securities and commodities and don’t mention cryptocurrencies at all. Pamela Lew, a senior counsel in IRS’ Financial Institutions & Products Division, said that many parts of the IRC could make sense only if it is clear that an asset is characterized as a security or commodity. She added that brokers and their clients would like to know how Section 6045 applies to cryptocurrency.

Crypto Reporting Regulations Should Have Been Released by June 2020

Previously, the IRS 2019-2020 priority guidance plan, which discusses the first things to do during the period from July 2019 to June 2020, listed information reporting for virtual currencies under Section 6045. However, the government has to delay the release of the new regulations. Nijenhuis said:

“That timeline has come to move as events have overtaken us during the course of this year. I think given how uncertain everything else is this year, we can’t really make any predictions in that regard.”