U.S. President Joe Biden’s proposed budget will be released on March 9, including a stipulation for tax loss loopholes on crypto transactions.
The budget blueprint will include a provision to reduce wash sales. Currently, crypto investors can trade any cryptocurrency at a loss, claim the losses on taxes, and buy the same token at the same amount again.
Biden’s 2024 budget blueprint
President Joe Biden’s budget proposal will describe his fiscal priorities to save hundreds of billions of dollars by lowering prices on essential needs, raising business taxes in some industries, cutting wasteful spending, and clamping down on fraud.
According to White House officials, the proposal will address lowering the federal budget deficit by almost $3 trillion over the next ten years.
Any budget proposal will need the approval of the Senate and the House of Representatives before being signed by the president.
The bipartisan infrastructure bill
The budget proposal to close crypto loopholes is not Joe Biden’s first attempt at regulating the crypto industry. In Sep 2021, Democrats proposed a bill to impose wash sales on the crypto industry.
The bill focused on crypto, stocks, bonds, and other digital assets – and was set to eliminate the dual benefit of crypto traders claiming tax losses and buying back the asset at the same price or lower.
The House of Representatives also voted in a bipartisan infrastructure bill, which became the Infrastructure Investment and Jobs Act, imposing reporting rules on crypto transaction brokers. All brokers were required to record transactions under the operating tax code.
However, the crypto industry proponents were dissatisfied with the definition of ‘broker’ for Internal Revenue Service functions. The definition was too broad, carrying other role players such as miners and other entities not part of the transactions.
The tax code section 6050I
Another stipulation in the bill, which brought fear to the crypto industry, called for the amendment of the tax code section 6050I. The bill, written over 40 years ago, dictated that ‘any person engaged in a trade or business that receives cash in excess of $10,000 in a single transaction or related transactions must file form 8300’.
The form is to be used to verify the sender’s information, including their social security number, the receiver’s or business’s personal details, the nature of the transaction, and other details. The sender must also record the transaction with the government within 15 days.
Unlike other bills imposed on the crypto industry, violating the tax code section 6050I is a felony. However, it is nearly impossible for digital assets such as cryptocurrency and NFTs to adhere to these requirements.
Industry proponents called for pushback on the bill’s provision holding passage in the Senate, giving the industry time to call for amendments to change the language. However, despite the efforts, the Senate ultimately passed the bill without considering the amendments.
The Treasury Department has not broken down the bill or given its plans to interpret it – hence crypto role players have no guidance on how to adhere to it.