Anthony Tuths’ Post

The SEC just sent a warning to crypto companies. This time, the issue isn't securities laws but accounting rules. It's a signal that financial reporting is under scrutiny. Here's what happened and why it matters: The warning came in the form of a comment letter to a publicly traded BTC miner. The SEC objected to the company's use of non-GAAP measures that excluded the impact of FASB's new crypto accounting rule. This practice was deemed an "individually tailored" measure - a violation of SEC guidelines. Notably, Coinbase used a similar strategy in its Q1 report, potentially putting them at risk of receiving a similar comment letter. This incident highlights a broader challenge in crypto accounting. The new FASB rule introduces fair-value accounting for digital assets, creating earnings volatility. Companies typically respond to volatility by using non-GAAP metrics to strip out these effects (or, layer on derivatives as economic hedges and apply hedge accounting). However, the SEC's stance emphasizes that non-GAAP measures for crypto assets must adhere to strict regulatory guidelines. In essence the SEC is saying, "you all wanted fair value reporting... so now that you have it, you better carefully follow it." So what should crypto companies do? 𝗛𝗲𝗿𝗲 𝗮𝗿𝗲 𝘁𝗵𝗿𝗲𝗲 𝗸𝗲𝘆 𝘁𝗮𝗸𝗲𝗮𝘄𝗮𝘆𝘀: 1. Review and revise non-GAAP reporting practices asap. Ensure GAAP-compliant metrics lead, with equal prominence given to both GAAP and non-GAAP measures. Be aware that the SEC is not a fan of non-GAAP metrics. 2. Prepare for increased earnings volatility in financial statements. This is a by-product of fair value reporting. In the old accounting, we only saw the downward adjustments (not a good outcome)... now we get both the downward and upward adjustments. Volatility should be expected. Provide clear reconciliations between GAAP and non-GAAP measures without creating individually tailored metrics. 3. Enhance transparency in crypto asset disclosures to meet regulatory expectations and avoid SEC scrutiny. Understand the new disclosure requirements and carefully follow them. Adapting to these changes now will position companies at the forefront of crypto financial integrity. Reach out to see how TaxBit can help!

Trade Groups Urge SEC to Revise Crypto Accounting Guidance According to Bloomberg, powerful interest groups are urging the Securities and Exchange Commission (SEC) to revise its existing guidance on crypto accounting. The regulator is already facing pressure from both Democrats and Republicans in Congress to repeal the guidance. The trade group coalition, which includes the Bank Policy Institute, the American Bankers Association, and the Securities Industry and Financial Markets Association, has requested key changes to the guidance. The existing guidance directs public companies, including banks, to count crypto they custody as liabilities on their corporate balance sheets. This means banks have to set aside assets worth a similar amount to protect against losses to comply with their capital requirements. The groups argue that if regulated banking organizations are effectively precluded from providing digital asset safeguarding services at scale, investors and customers, and ultimately the financial system, will be worse off. The SEC has said its accounting guidance is necessary because crypto assets pose unique risks and uncertainties compared to other assets banks hold for clients. The guidance in question, known as Staff Accounting Bulletin 121 (SAB 121), has resulted in banks being unable to crack into the crypto custodian business and recently missing out on providing that service for the newly-approved Bitcoin ETFs. The trade groups also pointed to other challenges they’ve faced because of the guidance, including a “chilling effect” on plans to use blockchain, or distributed ledger, technology for traditional assets. On Thursday, a spokesperson for the SEC described SAB 121 as “non-binding staff guidance” that, if followed, “enhances important disclosure to investors in firms that safeguard crypto assets for others.” The requests made in the Wednesday letter seek to find a path forward with the SEC, at a time when some US lawmakers are ramping up calls to repeal the bulletin outright. The idea has gained traction on Capitol Hill over the last several months following a report from the Congressional Research Service. Earlier this month, Reps. Tom Emmer and Patrick McHenry introduced legislation to repeal SAB 121, arguing that the SEC should not be making rules that affect bank custody. Disclaimer: Includes third-party opinions. No financial advice. #sec #crypto #accounting

IRD honing-in on Crypto activity   The IRD recently released a statement on ramping up audit activity in the crypto space. Please see our short summary https://lnkd.in/g_QEBi_3 on tax issues surrounding crypto.   How we assisted a client through a crypto disclosure with Inland Revenue.   We worked with a client who undertook crypto as a hobby outside of their main employment. The crypto market had flourished, our client rode the wave and over a period traded significantly. We looked at the entire portfolio and transactions, provided our view on the tax treatment in respective periods and engaged Inland Revenue’s crypto team which led to a Voluntary Disclosure. Our client was very pleased with the outcome as it provided clarity to their tax position, saved them a significant amount on penalties and interest cost. If you would like to have a chat on your crypto activity, please reach out to Serjit S. or Michelle Turner. Mike Atkinson; Aaron Wallace; Matthew Bellingham; Niketa Naran; Ellie Williams; Jody Gilfillan; Rachel Bradburn; Kelvin Sam; Nick Savill

✨ Today In Tech #052 - June 30th 2024✨ 💡Topics💡 1️⃣ Crypto => IRS and Treasury Finalize Crypto Reporting Rules, Decentralized Platforms Exempt Until 2026 2️⃣ Law => Detroit Police to Implement Stricter Facial Recognition Policies in Legal Settlement with ACLU 1️⃣ Crypto => IRS and Treasury Finalize Crypto Reporting Rules, Decentralized Platforms Exempt Until 2026 🛈 Source : https://lnkd.in/g7DAmTFM The Internal Revenue Service (IRS) and the U.S. Department of Treasury have finalized new regulations implementing a provision of the Biden Administration's Infrastructure Investment and Jobs Act. Starting in 2026, crypto platforms must report transactions to the IRS, while decentralized platforms that don't hold assets themselves will be exempt. Gains from selling crypto and other digital assets are taxable even without these new regulations, but there was no real standardization around how those gains were reported to individual investors and the government. Starting in 2026, crypto platforms must provide a standard 1099 form, similar to those sent by banks and traditional brokerages. The IRS is also working to crack down on tax evasion by ensuring digital assets are not used to hide taxable income. However, after lobbying from the crypto industry, decentralized brokers that don't take possession are excluded from these rules. The Treasury Department and IRS will cover these decentralized brokers in a separate set of regulations.

Our tax team has just published a comprehensive article on navigating the complexities of cryptocurrency taxation. Whether you’re an individual investor or a business dealing with digital assets, our expert insights can help you stay compliant. For tailored advise and support, do not hesitate to reach out to our tax team.

✨ Today In Tech #028 - June 2nd 2024✨ 💡Topics💡 1️⃣ Politics & Crypto => President Biden Vetoes Resolution to Overturn SEC's Crypto Guidance for Banks 2️⃣ CyberCrime => Live Nation's Ticketmaster Data Breach Exposes Personal Information of Customers 1️⃣ Politics => President Biden Vetoes Resolution to Overturn SEC's Crypto Guidance for Banks 🛈 Source : https://lnkd.in/gH8DwigK US President Joe Biden has vetoed H.J.Res. 109, a congressional resolution that would have overturned the Securities and Exchange Commission's current approach to banks and crypto. The resolution targeted the SEC's Staff Accounting Bulletin 121, which presents guidance on how banks can handle customers' crypto assets. Banking groups have criticized this approach as making it prohibitively expensive for them to handle crypto, while regulators argue it is necessary to protect investors, particularly after the collapse of high-profile crypto companies like FTX. Biden stated that the Republican-led resolution would inappropriately constrain the SEC's ability to set forth appropriate guardrails and address future issues. H.J.Res. 109 was passed with mostly Republican support, but 21 Democrats supported it in the House, and Majority Leader Chuck Schumer was among the Democrats who supported it in the Senate. Organizations opposing SAB 121 include the American Bankers Association and other financial industry lobbying groups, as well as the crypto industry advocacy group Stand With Crypto. The White House's announcement leaves the door open for further negotiations around crypto regulation, with Biden stating that his administration is eager to work with Congress to ensure a comprehensive and balanced regulatory framework for digital assets.

How the world has changed and we must now include in our wider understanding and knowledge bank.

The Internal Revenue Service previewed a draft version of the Form 1099-DA for crypto brokers reporting on the proceeds of digital asset transactions to their customers. The form is the result of the bipartisan Infrastructure and Investment Jobs Act signed into law in 2021, which classifies crypto exchanges and trading platforms as brokers and requires them to report on their customer's gains and losses to the IRS every year starting with tax year 2025. Customers and the IRS would start receiving the forms in time for the 2026 tax season. The IRS issued proposed regulations last year on the new requirements. Crypto brokers were supposed to start tracking the transactions last year. Under the proposed regulations, a broker providing custodial services for digital asset would be required to provide adjusted basis reporting for sales of digital assets effected on or after Jan. 1, 2026, if the digital asset is acquired and continuously held by that broker in the customer's account on or after Jan. 1, 2023.

The finalized crypto broker reporting regulations will be published tomorrow. Here's a summary of the 5 major changes: Why should you care? Because they will impact how taxpayers and brokers report, reconcile, and manage digital assets. Here are the critical changes: 1️⃣ 𝗥𝘂𝗹𝗲𝘀 𝗗𝗲𝗹𝗮𝘆𝗲𝗱 𝗳𝗼𝗿 𝗡𝗼𝗻-𝗖𝘂𝘀𝘁𝗼𝗱𝗶𝗮𝗹 𝗣𝗿𝗼𝘃𝗶𝗱𝗲𝗿𝘀 (𝗗𝗲𝗙𝗶) Proposed regulations from August 2023 introduced a new broker category called "digital asset middleman." This category potentially includes front ends, software wallets, RPC nodes, block builders, L2 sequencers, liquidity providers, and more. The final regulations “reserve” on this definition, but the preamble says Treasury and the IRS "do not agree that non-custodial industry participants should not be treated as brokers" and intend to "expeditiously" issue final regs for noncustodial actors. In other words, expect clarification on this soon. 2️⃣ 𝗦𝘁𝗮𝗯𝗹𝗲𝗰𝗼𝗶𝗻 𝗥𝗲𝗽𝗼𝗿𝘁𝗶𝗻𝗴 𝗔𝗱𝗷𝘂𝘀𝘁𝗺𝗲𝗻𝘁𝘀 Initially, all stablecoin dispositions required 1099s, but to ease tax administration, the final regulations allow an alternative reporting method. Exchanges of qualifying stablecoins for non-stablecoin digital assets are not reported, while exchanges for other assets or services are reported only if they exceed $10k/year. Qualifying stablecoins include those designed to track fiat currencies, with mechanisms to prevent significant depegs or redemption requirements. 3️⃣ 𝗜𝗻𝗳𝗼𝗿𝗺𝗮𝘁𝗶𝗼𝗻 𝗥𝗲𝗽𝗼𝗿𝘁𝗲𝗱 Brokers must report gross proceeds for digital asset transactions effected after 2024 and the basis for transactions effected after 2025. Reporting transaction time, ID, and the customer’s blockchain address is no longer required. However, they must retain transaction IDs and blockchain addresses for seven years. 4️⃣ 𝗘𝘅𝗰𝗹𝘂𝗱𝗲𝗱 𝗧𝗿𝗮𝗻𝘀𝗮𝗰𝘁𝗶𝗼𝗻𝘀 Certain transactions are exempt from reporting, including: - Wrapping/unwrapping - Liquidity provision - Consensus layer and liquid staking - Lending with an obligation to return identical assets - Short selling - Notional principal contracts. 5️⃣ 𝗠𝘂𝗹𝘁𝗶𝗽𝗹𝗲 𝗟𝗼𝘁𝘀 𝗜𝗱𝗲𝗻𝘁𝗶𝗳𝗶𝗰𝗮𝘁𝗶𝗼𝗻: Taxpayers must specify which units of a digital asset they are selling using the specific identification method, which must be done by the sale date. If not specified, brokers will use the "first-in, first-out" (FIFO) method. Standing orders for pre-deciding units to sell are allowed. Brokers can use customer-provided acquisition information if it is reliable. ---- In this week’s Chain Reactions newsletter, we’re doing a full write-up on the finalized crypto broker reporting regulations. Subscribe in the first comment so you don't miss it!

Yesterday, I attended a super useful and important session on IRS Revenue Procedure 2024-08 led by Patrick Camuso, CPA (a leading crypto CPA) - to put it lightly, the presentation is an extremely valuable early glimpse of something that impacts the vast majority of crypto investors starting January 1, 2025. It is easy to predict that there will be much, much more on this in the coming weeks and months. A great deal remains up in the air regarding the path to compliance but I will say that it should not be taken lightly - a seismic shift from universal cost basis tracking to per wallet tracking. I myself have begun my personal due diligence on what lies ahead. In fact, I took steps yesterday based upon information in the session. I simply visited three exchanges that I use to set my preferred accounting method to FIFO. Imagine my surprise that as of yesterday, I could only do this for one! Having never thought to do it previously and now knowing the importance, it is rather disheartening with such a short window remaining in 2024. That said, my sense is that the default for those two is FIFO - at least I hope that's the case. I am reaching out to there respective support teams to see if there is clarity and to give me safe-harbor documentation. And these are not obscure exchanges - very much mainstream. So I am totally horrified for my clients who trade on a wide variety of around the globe exchanges. The need to reconcile tax forms to tax software reports looks to be a significant concern. I have started my list as a service to my clients. The crypto industry prefers decentralization and this is clearly a US-centric issue. Best that I can offer is to hope that reviewers out there (as a PSA) begin to post content on this topic. It's a really big deal.