According to reports, the US president is set to announce a new budget proposal that would effectively close tax loss harvesting on cryptocurrency transactions. President Biden will unveil the proposal on Thursday to close loopholes exploited by wash sales traders in the crypto industry.
Reducing Tax Loopholes
A White House official familiar with the latest development confirmed that the new budget would include a tax provision targeted at the crypto industry. In addition, it is intended to curb wash sales trading that is prevalent among crypto investors.
However, investors can still sell any crypto asset at a loss, claim the loss on their taxes, and continue to buy the same amount and type of tokens again. The Wall Street Journal (WSJ) reported that the budget provision is expected to raise close to $24 billion.
Additionally, the president’s proposal will outline his fiscal agenda. Officials of the White House told the WSJ that the plan is to reduce the US tax deficit by $3 billion in the next ten years.
Meanwhile, there are other attempts carried out by Washington to close the gap. In late 2021, lawmakers introduced a similar bill to prevent crypto traders from claiming a loss only to go back and repurchase the same digital asset.
As a result, any proposed budget would need clearance from the House of Representatives and the Senate before the president gives the final approval. So far, the president’s team reportedly passed crypto tax-related legislation into law in 2021.
The passed bill is called the “Bipartisan Infrastructure Framework,” which was later renamed to the “Infrastructure Investment and Jobs Act.” The bill reportedly contains a controversial tax provision that enforces certain reporting guidelines on brokers facilitating crypto trading.
Many in the industry view the definition of “broker” in the previous draft regulation as too broad a term to be used in the crypto space. The US Treasury Department indicated it would provide a narrow definition in response to the feedback.
US Audit Watchdog Doubts Crypto Proof of Reserve
Proof-of-reserve reports routinely published by crypto firms to assure customers that their funds are safe do not qualify as a transparent audit, according to the Public Company Accounting Oversight Board (PCAOB). PCAOB is an industry-funded regulator working under the supervision of the US Securities and Exchange Commission (SEC).
The audit watchdog stated that reports confirming crypto firms’ reserve holdings as proof that such a company is shielded against illegal financial dealings do not provide enough assurance. Accordingly, the body revealed that the reports are not audits and do not comply with any standard required of financial institutions in the United States.
Due to the absence of full-scale audits, as seen in the traditional financial sector, US-based crypto trading platforms use proof-of-reserve reports. Meanwhile, the PCAOB argued that proof-of-reserve reports are limited, and customers risk losing out on the fact about their crypto trading platforms.