Source: RSM US LLP. PBMares is a member of RSM US Alliance.
TAX ALERT |
On Wednesday, March 9, 2022, the White House released the Executive Order on Ensuring Responsible Development of Digital Assets (EO) and Fact Sheet. While this EO is written in fairly broad terms, it recognizes that digital assets present potential risks as well as potential benefits. The EO asks a variety of regulators and agencies to prepare reports on the risks presented by digital assets in an effort to develop a strategy for digital asset regulation going forward.
As highlighted in these documents, digital assets have grown exponentially, with market capitalization of digital assets growing from 15 billion to 3 trillion in the past five years alone and continuing to grow. Given this rapid growth and the relatively limited guidance regarding the treatment of digital assets, the White House recognizes the need for regulation in this area in order to ensure stability in the economy and consumer safety. Additionally, recent events in the Ukraine have highlighted the potential for countries to avoid economic sanctions through the use of digital assets. The EO demonstrates that the White House recognizes the need to protect against potential national security risks as well.
The EO asks a variety of federal government agencies and regulators to propose rules to regulate digital assets. The EO specifically requests recommendation regulations needed to:
- Ensure the protection of businesses, consumers and investors.
- Protect the global financial market in order to promote stability.
- Mitigate any national security risks associated with the misuse of digital assets (e.g., money laundering, cybercrime, evasion of sanctions, etc.).
- Continue to promote US leadership and the global economy, particularly as it relates to digital assets.
- Ensure safe, affordable and equitable access to financial services.
- Consider the potential of a Central Bank Digital Currency (CBDC defined under the EO as “a form of digital money or monetary value, denominated in the national unit of account, that is a direct liability of the central bank”) system in the US.
While the EO does not focus specifically on the taxation of digital assets, the EO contains broad direction to the Treasury Department and other agencies to develop a framework for interagency international engagement with their foreign counterparts to enhance “global compliance” which presumably would include compliance with U.S. and foreign tax laws. Taxpayer should expect proposals designed to enhance global tax compliance and information reporting and to enhance global cooperation around digital asset taxation.
Taxpayers should expect to see proposals in response to this EO in the next one to two years.
Our team will continue to monitor this space and will provide updates as they develop.
This article was written by Ramon Camacho, Jamison Sites, Melanie Gulden and originally appeared on 2022-03-14.
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