The Biden administration on Friday issued proposed regulations to implement a key revenue-raiser from the 2021 infrastructure law that would require additional reporting of cryptocurrency transactions to the IRS.

The infrastructure package initially required the Treasury Department and IRS to finalize the rules by the end of this year, in time to start collecting more revenue as soon as 2024. But a lengthy delay means the initial proposal will be published in the Federal Register this coming Tuesday, triggering a two-month public comment period followed by a hearing on Nov. 7.

That timeline makes it difficult, if not impossible, for the administration to meet the year-end deadline for finalizing the new regulations, which are viewed by backers as critical to policing a largely unregulated sector plagued by tax avoidance.

The proposal acknowledges the likely delay by giving cryptocurrency brokers more time before being required to deliver more information to the IRS — forms would be required in 2026, covering transactions in the 2025 tax year.

Furthermore, the proposed regulations would exempt cryptocurrency miners and stakers, individuals who validate transactions, from the rules and some peer-to-peer or “decentralized” exchanges would also be exempt.

That’s a boon to the industry which has sought exemptions dating back to the initial 2021 debate over the infrastructure bill, when allies on Capitol Hill ran out of time to add clarifying language to the measure. But the law gave broad latitude to Treasury and the IRS to implement the provision, giving industry supporters hope. 

[Cryptocurrency tax reporting deal scotched in Senate]

House Financial Services Chairman Patrick T. McHenry, R-N.C., said the delayed effective date and exemptions are welcome but the new proposal doesn’t go far enough to fix “misguided” reporting requirements in the 2021 law.

“The Biden administration must end its effort to kill the digital asset ecosystem in the U.S. and work with Congress to finally deliver clear rules of the road for this industry,” McHenry said in a statement, touting a bipartisan bill he’s introduced with Rep. Ritchie Torres, D-N.Y., and others.

Industry stakeholders were parsing the 282-page proposal on Friday and expected to have more to say about it in the coming months, including through the public comment process.

“It’s critical to ensure that participants transacting with digital assets pay their taxes,” Blockchain Association CEO Kristin Smith said in a statement. “However, it’s important to remember that the crypto ecosystem is very different from that of traditional assets, so the rules must be tailored accordingly and not capture ecosystem participants that don’t have a pathway to compliance.”

‘Crack down on tax cheats’

In general, the infrastructure law provision was intended to align tax reporting rules for cryptocurrency transactions with those investors in other types of financial instruments are subject to.

It adds anyone “responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person” to the definition of a broker required to provide tax forms to the IRS and customers, including names, addresses and gross proceeds for transactions. It also mandates broker-to-broker reporting and that business transactions of more than $10,000 in cryptocurrency be reported to the IRS, a rule that currently applies to large cash payments.

In a statement Friday, Treasury and the IRS said the proposed rules would help “crack down on tax cheats while helping law-abiding taxpayers know how much they owe on the sale or exchange of digital assets.”

The Joint Committee on Taxation in 2021 estimated the provision would net $28 billion in added revenue over nine years starting in fiscal 2024, though if the current regulatory structure is finalized those collections would be delayed and possibly reduced.

Earlier this month, crypto industry critics voiced concern about the delay in getting the regulations out and potential exclusions that could soften the impact.

In an Aug. 1 letter to Treasury Secretary Janet L. Yellen and IRS Commissioner Danny Werfel, four senators wrote that the 2021 infrastructure law’s intent was to “prevent the emergence of a system of institutionalized tax evasion.” They wrote that any final rule must “maintain the breadth that Congress intended, covering all of the third-party intermediaries facilitating the purchase and sale of digital assets.”

The letter — from Elizabeth Warren, D-Mass., Bob Casey, D-Pa., Richard Blumenthal, D-Conn., and Bernie Sanders, I-Vt. — called any delay in finalizing the rules beyond Dec. 31, 2023, an “unacceptable outcome” that will allow crypto tax evaders to “game the system, exploit loopholes, and siphon off billions of dollars a year from the U.S. government.”

In a statement released Friday after the administration unveiled the new regulations, Warren said the proposal “falls short” of congressional intent when lawmakers wrote the infrastructure law. 

“A strong rule is essential to prevent wealthy tax cheats from hiding income in digital assets, and one should be implemented by the end of the year,” Warren said.