On Monday, US President Joe Biden released his 2023 budget proposal, in which he seeks to modernise rules governing digital assets. The President claims that the budget proposal will help generate an additional $11 billion in revenue by 2032 and strengthen the Department of Justice’s ability to combat cyber threats and the use of cryptocurrencies.
The administration is underway to amend the mark-to-market rules to include digital assets; require certain taxpayers to report foreign digital asset accounts; require financial institutions and crypto brokers to report information; treat loans of securities as tax-free to include other asset classes and “address income inclusion.”
Between 2023 and 2032, the government forecasts that upgrading these regulations would generate about $11 billion in revenue, with more than $4.8 billion generated in the first year of applying mark-to-market standards to cryptocurrencies and other digital assets.
Additionally, the proposal seeks to increase the DOJ’s budget by $52 million to fund additional agents, enhance the response capabilities, and strengthen the intelligence collection and analysis capabilities. It also notes that these investments are consistent with the Administration’s counter-ransomware strategy, which focuses on disruptive activity and cryptocurrency misuse.”
According to the Treasury Department’s justifications for the plans, the mark-to-market adjustments would include actively traded digital assets and their derivatives in a category subject to such rules at the end of each year. However, not all digital assets would qualify, but only those consistently purchased and sold for US dollars or other fiat currencies with sufficient volume to provide valid appraisals and reliable price quotations. The plan would apply to tax years starting after December 31, 2022.
Changes to the regulations governing loans of digital assets would also be made. Over time, the market for lending financial and other assets has extended to encompass digital assets and interests in publicly listed partnerships, said the Treasury in its report. The regulations governing the nonrecognition of securities loans should be revised to take this expansion into account.
The proposed loan rule change would amend the securities loan nonrecognition requirements to include loans of actively traded digital assets on cryptographically secured distributed ledgers if the loan terms are comparable to those now required for loans of securities.
