Biden Budget Proposal Estimates Additional $11B in Revenues by 2032 by Updating Crypto Rules

U.S. President Joe Biden released his 2023 budget proposal on Monday, and in it, his administration is seeking to modernize rules around digital assets that it says would generate an additional $11 billion in revenues by 2032, as well as expand the Department of Justice’s ability to counter cyber threats that involve ransomware and the use of cryptocurrencies.

• Among the digital asset rules the administration is looking to update are amending the mark-to-market rules to include digital assets; requiring reporting by certain taxpayers of foreign digital asset accounts; providing for information reporting by financial institutions and crypto brokers; and treating loans of securities as tax-free to include other asset classes and “address income inclusion.”
• The administration estimates that modernizing these rules will bring in almost $11 billion in revenue between 2023-2032, with more than $4.8 billion coming from the first year of applying mark-to-market rules to digital assets.
• The proposal also seeks to expand the DOJ’s budget by $52 million for “more agents, enhanced response capabilities, and strengthened intelligence collection and analysis capabilities” and noted that “These investments are in line with the Administration’s counter-ransomware strategy that emphasizes disruptive activity and combating the misuse of cryptocurrency.”
• In the Department of the Treasury's explanations of the proposals, the mark-to-market changes would add actively traded digital assets and derivatives of these assets to a category that would be subject to such rules at the end of each year. Not all digital assets would qualify, however—only those that were determined to be regularly bought and sold for U.S. dollars or other fiat currencies, have enough volume to generate reliable valuations and have available reliable price quotes. The proposal would be effective for tax years beginning after Dec. 31, 2022.
• As for the changes to rules for loans of digital assets, that would be updated as well. "The market for lending of financial and other assets has expanded over time to include digital assets and interests in publicly traded partnerships," the Treasury explanation report said. "The securities loan nonrecognition rules should be amended to take this expansion into account."
• The loan rule change proposal would "amend the securities loan nonrecognition rules to provide that they apply to loans of actively traded digital assets recorded on cryptographically secured distributed ledgers, provided that the loan has terms similar to those currently required for loans of securities."

UPDATE (March 28, 2022, 17:40 UTC): Updates to include Department of Treasury comments on loans of digital assets.

UPDATE (March 28, 2022, 19:26 UTC): Updates to include Department of Treasury comments.\ on mark-to-market proposals.