How President Biden’s 2023 Tax Policy Proposal Presents Major Changes for Digital Assets, Cryptocurrency

by TK Sanders
(Photo by Scott Olson/Getty Images)

Last week President Biden and the Department of the Treasury issued the 2023 Revenue Proposal, which included a number of measures that will directly affect tax policy for cryptocurrency traders. Known commonly as The Green Book, the revenue proposal aims to create and adjust fiscal policies meant to increase revenues and improve the tax administration.

At a glance

  • President Biden and the Department of the Treasury issued new proposed tax guidelines last week
  • Digital assets and cryptocurrencies will see a myriad of policy changes if ratified
  • Four specific policy changes for digital assets will transform the sector into a more regulated, accounted-for market, like a typical stock exchange

Much of the media attention surrounding the proposed policy changes outlines the capital gains tax codes for high-income earners. But going slightly unnoticed is the robust change to digital asset tax policy, like cryptocurrency ownership and asset exchanges.

President Biden wants to introduce new policy aimed at more comprehensive tax reporting for cryptocurrency owners

Specifically, the proposal includes four digital tax policy changes. Each policy will have a direct impact on taxpayers, as Forbes reported this week.

The first change affects cryptocurrency lenders, a business that has expanded rapidly over the past several years. The treasury aims to make cryptocurrency-based loans tax-free similar to loans based on stocks & securities; as long as certain criteria are met.

The next change applies to specified financial assets held by Americans in foreign countries. In the past, these accounts have been subject to IRS reporting; and now the IRS wants to know about foreign cryptocurrency balances, too. To comply with the rules, US taxpayers with foreign accounts in excess of $50,000 are required to file a Form 8938 (Statement of Specified Foreign Financial Assets). There, they disclose various information about those assets. Digital assets in overseas accounts remained a grey area in terms of reporting during the early years of crypto trading; now the IRS wants to clarify its ruling.

New policies will make the crypto market look more like the stock market

The third change directly affects cryptocurrency day traders who try to time market movements multiple times per day. Typically, stock and security traders can treat gains and losses as ordinary income. This allows them to deduct unlimited amounts of losses and override the $3,000 annual cap on capital loss deduction. The treasury wants to allow crypto traders this same option, given the sector’s tremendous growth in recent years.

Finally, the fourth proposal applies directly to U.S. cryptocurrency exchanges, themselves. When dealing with securities, the American tax regulators heavily rely on information shared by foreign financial institutions and governments to combat tax evasion. It is a system of reciprocity in which both governments presumably benefit. Now, the IRS wants to extend that system into cryptocurrencies by requesting digital asset information from exchanges, even if they are not based in the country.

“This [policy change] would allow the United States to share such information on an automatic basis with appropriate partner jurisdictions, in order to reciprocally receive information on U.S. taxpayers,” the Green Book proposal read.