US Biden Administration Budget Message Proposed Changes to Virtual Currency Taxation

Proposing the application of wash sale rules, etc.

The US Biden administration announced the budget statement for the 2024 fiscal year (October 23-September 24) on the 9th. Regarding crypto assets (virtual currencies), there are places where changes have been proposed in terms of taxation.

Specifically, virtual currency will be subject to the “wash sale rule”. A “wash sale” is generally a transaction in which an investor effectively maintains a certain position in a stock, etc., with the aim of making an investment loss in order to receive a tax deduction.

An example is when an individual sells a stock at a loss and then purchases the same or substantially the same stock or security within 30 days before or after the sale.

The budget includes a clause that eliminates tax credits for losses incurred when buying the same or similar cryptocurrencies, selling them, and then immediately repurchasing them. Stocks and bonds already receive such treatment for US tax purposes.

The Biden administration estimated that the change would generate about 4.3 trillion yen (about $31.6 billion) in revenue over the 10-year budget window.

In addition, we proposed the following changes related to virtual currency.

• Information reporting by financial institutions and cryptocurrency brokers
• Virtual currency will also be subject to the mark-to-market taxation system
• Requires Americans with large amounts of assets in cryptocurrency accounts outside the United States to report their assets to the Internal Revenue Service

We estimate that these changes will allow us to raise about ¥5.5 trillion (about $40 billion) in funding over a 10-year budget.

In the United States, Congress has the authority to formulate the budget, so the budget document is a proposal that the president presents policies to Congress. The parliament will discuss the budget while referring to the State of the Union. For this reason, not all of the contents are realized.

The entire budget proposal proposes to cut the federal budget deficit by nearly ¥409 trillion ($3 trillion) over the next decade. He also proposed an increase in the corporate tax rate from 21% to 28%, a higher tax on capital gains for high-income earners, a tax on foreign profits of US companies, and stronger taxes on oil and gas companies.

Total expenditure is required to increase by 8% from the previous year to about 937 trillion yen ($6.88 trillion).

Infrastructure Act Virtual Currency Provisions

The infrastructure bill enacted in 2021 by the Biden administration also includes provisions related to virtual currency, which is viewed as a problem by the industry and some lawmakers.

The provision requires cryptocurrency “brokers” to disclose information about their clients for tax reporting purposes. However, since the definition of a broker is unclear, there are concerns that businesses that do not have customer information, such as miners and wallet providers, will also be subject to reporting obligations.

connection: Submission of an amendment to the House of Representatives, over the virtual currency clause in the US infrastructure law

A group of lawmakers led by Rep. Patrick McHenry and Rep. Richie Torres submitted another amendment on Wednesday to limit the scope of “brokers.” The clause is incompatible with the operation of digital asset technology, and may hinder innovation.