The chief tax-writing committee of the United States House of Representatives, the Ways and Means Committee has proposed to include the wash trade law to the controversial crypto clause in the U.S. Infrastructure bill. Last month, the Ways and Means Committee published a summary report, adding cryptocurrency to the list of entities that come under the wash sale rule. While wash trading is the most popular loophole for traders to prevent paying massive taxes on their profits, but it may soon be taken away from them if the Ways and Means Committee proposal is passed.
The tax-writing committee noted that the decentralized sphere did not exist when the wash sale rule was first implemented, hence the law doesn’t apply to the crypto industry yet. However, the authorities argued that cryptocurrency operations are like stocks & securities and therefore, the wash trade law that applies to stocks & securities should also be a legal requirement for crypto traders. Furthermore, the elimination of the crypto tax loophole would add an eminent revenue stream for tax generation, which can also be used to fund the infrastructure bill. If the Ways & Means Committee suggestions are adapted, cryptocurrency trades occurring after December 31, 2021, will be subject to the wash sale rule.
“This section (Sec. 138153) includes commodities, currencies, and digital assets in the wash sale rule, an anti-abuse rule previously applicable to stock and other securities. The wash sale rule in section 1091 prevents taxpayers from claiming tax losses while retaining an interest in the loss asset”, states Sec. 138153 of the Ways & Means summary document.
NFTs also use the Wash Trade Loophole
Earlier this month, Coingape reported on the Founder of Kynikos Associates, James Steven Chanos’ critique on the trending NFT industry, comparing the tokenized market strategy to “wash trading”. He asserted that traders can conveniently set a false, inflated market price, only to then issue another set of NFTs later, at a seemingly prominent discount, to trigger massive buying. Chanos argued that the NFT sphere has been overflown with “nefarious activity” and conflicts of interest.