The growth of crypto and digitized currencies has seemingly forced the hands of governments. In 2019, the IRS has begun passing down legal guidance and regulation for how investors, businesses, accountants and tax professionals should handle these digital and decentralized financial instruments in the years to come.
As 2019 comes to a close, a new bill has been put forth entitles the Crypto-currency Act of 2020. This new possible piece of legislation may lead cryptocurrencies down a long path towards global acceptance and regulation. But it will require unique, practical strategies introduced from the highest level of governments.
- U.S Congressman Paul Gosar introduced a draft bill to add more regulatory clarity within the cryptocurrency industry.
- The goal of the Cryptocurrency Act of 2020 will be to decide which federal agencies are responsible for cryptocurrency regulation.
- Rules will be initiated that would require all cryptocurrencies and digital currencies transactions to be traced, and the individuals facilitating the transactions, similar to other traditional currency transactions.
In 2019, the Token Taxonomy Act was reintroduced to handle regulation confusion and saw the IRS issue professional guidance for crypto tax, in addition to deploying ten thousand letters to known US-crypto holders. These marked some of the first times the U.S government issued legitimate formal guidance to handle cryptocurrency tax reporting.
The new bill issued by U.S Congressman Paul Gosar will introduce more clarity for cryptocurrencies in the coming years, while also developing segment-leaders to handle the different crypto-related sectors. The proposal states that the three crypto segments will be enforced by three separate organizations, each with its own “federal crypto regulator”.
Additionally, rules will be established with the goal of tracing all crypto and digital currency transactions, in addition to the personal facilitating the transacting, similar to other traditional currency transactions, securities fraud, corporate auditing and other financial activities.
What are the three-sectors?
- Crypto-commodities: This segment will be regulated by The Commodity Futures Trading Commission (CTFC). Crypto-commodity is defined as “economic goods or services”.
- Crypto-currencies: This segments will be regulated by the Securities and Exchange Commission (SEC). Crypto-currencies is defined as a representation of US currency “synthetic derivatives resting on a blockchain”.
- Crypto-securities: This segment will be regulated by the Financial Crimes Enforcement Network (FinCEN). Crypto-securities is defined as “all debt, equity, and derivative instruments that rest on a blockchain”.
What this could mean for businesses and investors?
For crypto business and investors, they will need to start taking more control over managing their cryptocurrency assets. It will be imperative to track all transactions, account for assets, organize portfolios and have all the necessary information for filing taxes or general bookkeeping and accounting.
Finding a crypto accounting firm or taxation specialist will help guide businesses or investors towards taking the necessary steps to begin reporting their financial assets to the appropriate authorities.
What would this mean for industry professionals?
Today’s growing number of crypto accountants and tax professionals are already moving at breakneck speeds to wrap their head around the most legal, and effective way to handle crypto tax for investors, companies, funds and high-networth individuals. The news of pending clarity are frustrating teasers of new government regulation.
These professionals are working together to use any available information to properly report crypto taxes and ensure correct cost basis calculations based on fair market value and accurately meeting the new reporting expectations for 2020.
In the excitement of all this news, no one is certain as to the result of this bill and how it will begin to affect the future of this industry.