 So in the crypto space, this has been the biggest piece of legislation that is affecting crypto exchanges, DeFi, taxpayers, and every stakeholder in the chain. When you sign up for your next like, you know, Web 3 wallet or when you transact in a DEX, you will have to give you a KYC information to that DEX and the DEX will have to kind of track your capital gains and capital losses and report that information to the IRS. So everybody, let's talk about your favorite subject, taxes. I know you are dying to talk about this. I'm dying to talk about it myself. Unfortunately, I don't know enough to really give you the full rundown of these new rules and regulations for the IRS. But thankfully, I know somebody who is. And this would be Shehan Chandrachara. Shehan, you've been on the show, I want to say three or four times now. So welcome back to the show to keep us up to date about what the heck is going on for taxes. Yeah, thanks for good to be here. Yeah. So when you reached out, you're like, this is new. This is new regulations coming in and they're and they're asking for input and it's going to really affect everybody. I'm like, yeah, yeah, yeah, we'll get to it at some point. But unfortunately, as I've come to find out that if I don't take action now, things are going on the tubes quickly. So you just shared this with me. I know it's like a 300 page document, the gross proceeds and basis reporting by brokers and determination of amount realized and basis for digital asset transactions. And the comments so far and the IRS puts things out about, you know, they want to comments people to get in 124,950. So and this is from comments from like blockchain organizations, you've got Kraken, you've got Coinbase and a bunch of them people that were making comments. What is going on with this? And why is this so important of what's happening? Yeah, so there's there's a lot to cover. Maybe let me give it kind of like the very simple version of what's happening. So so in the crypto space, this has been the biggest piece of legislation that is affecting crypto exchanges, DeFi, taxpayers and every stakeholder in the chain. So basically, as a result of these regulations, crypto exchanges, CeFi exchanges, certain wallet providers and dexers, they're forced to act very similar to stock brokers, like Robin Hoods of the world and etc. So what do I mean by that? That means if these proposed regulations get finalized as it is, when you sign up for your next like, you know, web three wallet or when you transact in a dex, you will have to give you a KYC information due to that dex and the dex will have to kind of track your capital gains and capital losses and report that information to the IRS and send you a tax form at the end of the year. So effectively, you know, this is kind of, you know, the the pressure on the government kind of forcing centralization into into DeFi as a result of this regulation. So that that is why it's very, very important. So how is this going to work? I mean, I mean, you just said that everything's going to be KYC and AML on these dexes. So how are they proposing to do this to make a really essentially a decentralized aspect to now just condense everything down to centralized? Yeah, so in the the regulation, I think the main thing is that they're defining a broker. And if you consider it to be a broker, you had to kind of go to this, you know, compliance requirements. So maybe let me kind of share the five types of brokers according to the Treasury. So number one, digital asset platform. So these include centralized exchanges, dexes and even like crypto ATMs. Number two, digital asset hosted for the providers. So I don't want to mention any names. But but you know your favorite with three wallets and etc. So those will be treated as a broker. Number three is interesting. So digital asset payment processors, they will be treated as brokers as well. So these are the the platforms that kind of allow you to kind of like if you're like a merchant, instead of accepting crypto directly, you, you know, hook up your system to a payment processor. So you get paid in USD. Number four, they call these other brokers like in a certain stable coin issuers. And if you're doing like an ICO, like they will have to kind of go to this KYC and reporting requirements. And then number five is like real estate person, somewhat rare, like if you're selling real estate, and if you're accepting crypto in exchange in instead of like cash, then you will have to do some reporting requirements. So the point is that again, those are the five categories. So according to the Treasury and the IRS, if you're allowing somebody to trade crypto in return for cash or any type of any type of compensation, and you're in the position to know the identity of that person, you will be treated as a broker. So that's how broadly that they define the term the broker. Wow. So I mean, you just talked about the one thing that that you said was the wallets. So, you know, you said your favorite web three wall, whatever you want to say that is. So let's say so all those web three wallets, and there's a there's a plethora of different wallets that are out there. Are you telling me that they're all they're all of them are going to have to register the individuals who download the wallet and say, okay, this is this is she hands wallet, and here this is all his information tied to the wallet, and we haven't registered and we're going to do KYC and all just for the wallets. So there's a there's a little exception to the wallets. So there are certain wallets that's only allow you to hold the private keys. Right. So those wallets are not considered brokers because it does not allow you to trade. However, there are a lot of wallets that have this kind of like swap feature. It allows it to kind of go from one coin to another directly through the wallet. So those could be considered as a broker. So in that case, if they want to operate in the US and serve us users without getting PNLs from the IRS. Yes, like, you know, whenever I do that trade, before I do the trade, I will have to give my KYC information to the wallet and and the wallet has to approve me as like a KYC user to to be confided in these new rules. I got you. So like, like that, I've seen that service in my ledger. I've seen that in LA Pal. I've seen that in Tangem, where, you know, it's a cold storage wallet. It's self custody. And but you hold your own private keys. So on that regard, it's okay. But there are options to do swaps. And if that's the case, they want everything to go about, first of all, how is that? I got asked, like, how is this even possible to actually get this done? And I guess that is the whole point of them asking for like, for like feedback. So what have you seen as far as like feedback for people to say, Yeah, this isn't going to work. Or or yeah, it could be a good question. So as soon as these proposed regulations came out, I personally spoke to like, almost like all the big players in the industry, like the three Wallace and exchanges and etc. The reality is that if you have a web three wallet software, you are in a position to put like a window asking for the KYC information, like it is possible. I mean, think about it, right? I mean, your web three wallet, they get updates like, I don't know, every month or something like that. So one of those updates could be like, you know, asking your name address and etc. So the ball providers can technically collect the KYC and kind of comply with the rules. But the problem is, how is that going to affect their business model, right? Because all these wallets are based on the premise that, you know, you you self custody things, you know, the Wallace don't want to collect the KYC information because they want people to transact anonymously. So, so to answer your question, it is possible, but then then it becomes like a business decision that they need to make. So yeah, so I could definitely see that. So I know like, I took a peek just to see like, you know, what what your response would be. And of course, yes, here you are for coin tracker and you laid it all out pretty well, I suppose, for what's happening. So if you could just summarize, like, like, what, what were you saying here as far as like, this will or won't work and how does this going to work? Yeah, so like, there are like a lot of like transaction aggregators like coin tracker in the space today, right? So obviously, we won't be brokers and we did not have any, like, you know, comments on, you know, who should be a broker and who should not be a broker. However, we are very concerned about some of the data gaps that this new 1099DA regime is going to create. Like, for example, let's say I have one Bitcoin in my my ledger or MetaMask wallet, and I send that to Coinbase and sell it there. So in that case, Coinbase will issue me like a 1099DA with only just sales number and the cost basis will be missing. So, so now this problem is going to get amplified because Coinbase has to report. I mean, they have already already been reporting because they're expected to be report reporting these things because they're centralized exchanges. But if I do that same thing for like any other wallet that could be treated as a broker, they will have to do the reporting as well. So there will be a lot of amplified data gaps. And now these data gaps, I think, what's different here is that now these like incomplete data, these brokers going to report that to the IRS and could be like triggering the IRS system erroneously. And you could get notices as a result of that. So as a matter of fact, the IRS is expecting in the first year 8 billion 1099DA forms filed by these brokers. So imagine like the volume of like incomplete and mostly inaccurate data IRS has to kind of pass through and kind of like, you know, take action. So we are very concerned about those data gaps that's going to get created as a result. Because whenever you touch a non broker type of location, Rob, you mentioned about the wallets that do not offer the swap feature or like self custodian type of situation, your cost rates is going to get lost. And the 1099DA, the tax form you're going to get at the end of the year will be in an incomplete and inaccurate. But most importantly, because of the rigs, those incomplete and inaccurate data now gets reported to the IRS, which is bad. Yeah, that's no, no, that's that's that's extremely bad night. I take a look at all this, this this data that's that's being thrown around. And of course, the problem with these with these with these three letter agencies, whether it be the CFT, well, CFTC is for actually SEC or the IRS, is that they're given us some type of regulations, because they're trying to muddle their way through. And we don't get all the information just like with the SEC, which is why they're suing Kraken and why they're suing Coinbase and why, just today, CZ Binance stepped down for AML violations. So like all these things that are that are happening, it makes me concerned because there's no clear guidance of actually what to do. And actually, if you think about it, even even moving forward, as far as like, who's a broker dealer, like we run a stake pool where stake pool operators for Cardano. And since since we give out these rewards, which would be the staking rewards for people who stake their Cardano with us. Now I sort of think myself, am I going to have to, you know, KYC and AML every single person that actually comes into our stake pool? So I can give them a I mean, if they're in America at 1099, is that how it's going to work? So there's good news for you. So I don't know what constitutes a broker dealer under the FINRA rule, but under the IRS rule, if you're solely running a proof of stake or proof of working validation type of service, you're not considered to be a broker. Which is good, because that's how all these blockchain kind of get initiated, right? That's how the new blocks are created. So at least they thought about that. And they're excluding that initiation point from broker reporting requirements, which is good. There's another exclusion. And if you're a merchant and you accept, you know, crypto directly in exchange for goods or services, you're not considered to be a broker. So that is also good because that could, I don't know, open up crypto to be used as a medium of exchange, you know, sometime in the future. Yeah, I got you. All right. Well, that's that's that's one good piece of information in a monstrous landslide of negativity. So, Sheehan, thank you for for kind of making things clear. Hey, and so I'm going to link the regulations link in the description below so you guys can check it out and take a look at what actually people are proposing. And these are like big names in the space, of course. But Sheehan, while I got you here, I'm just going to ask you some like different questions that people have been throwing at me, which are the first one, I think is a pretty good one, which is with all the different crypto centralized exchanges that have collapsed or are collapsing. How are we able to actually take any kind of losses on our taxes if we can actually do that? Let's say tomorrow, Binance shuts down, not throwing fun, we're saying what if what if it does shut down? How would that work for like going, Hey, I just lost my life savings or Hey, I just lost 100 bucks. Yeah, good questions. We actually wrote like a very in depth article about this. Actually, Rob, I'll link that to you here. Because I'll give you the TLDR. The TLDR is it depends on the each case of that exchange, because certain exchanges could go under because of, you know, just bad, you know, business decisions, or, you know, in some cases, they could have like, you know, tap to, you know, that type of losses. So it really depends on the nature of the loss. So that's number one. And number two, until you're 100% sure that, you know, you have no opportunity to kind of recover the funds, you cannot take that deduction. So in most like the case of the VA hearing, like all these, like in a case in the bankruptcies and all those things, these are kind of like ongoing. So until those things are finalized, you cannot even think about taking the deductions, you know, that that's how the tax tax tax tax low low works. The other possibility that I want you to think, and I actually experienced this, I had, you know, a few hundred dollars, you know, stuck on the block five. But after like a year or so, I was able to get everything back. So I thought I had a loss, but I got everything back. So it is also possible that you could get some of this money back, depending on your situation. So all these factors kind of go into the picture to see if you can take a deduction or not. And lastly, there could be situations where you can get a deduction, but if you don't do not itemize on your tax return, you're not getting any benefit out of that. So there's like so many questions you need to go to to see if it really makes sense for you to deduct it or if you can actually take a benefit out of that deduction. Perfect. So that would, well, here's a point for everybody. If deduction is scary, you're like, I don't know about that. Just go to your CPA. And hopefully they have some, they are a little well versed into crypto or digital assets. Good luck. But if not, I will give you a link to the shihan. Maybe, maybe, I don't even know if you do that anymore. I don't think I think you were a coin tracker exclusively. And that's it. I don't practice anymore. However, like, you know, we have a network of CPAs. So if you if you have, if you need to look for CPA, I'm happy to introduce you to your capable one. Perfect. And then also last question, which is this Christmas is coming up. So of course, a lot of people are looking to, to gift some things. And there's no better gift to my personal opinion than just a little crypto one of the Christmas tree. The question is this, how much can we gift our immediate family members? And is that a taxable event? If I have, let's just say I'm going to give, I don't know, 30 Pepe coin to my wife, which would be a really crappy gift. But let's just say I do that. And what is that a taxable event as I move things and then it goes into her? Or does she have to pay the taxes when she actually spends it or whatnot? Yeah, so gifting under the US tax law is not generally taxable. So in 2023, I just looked at the limit. So you can give up to $17,000 worth of coins or anything to unlimited number of people. So yeah, so I can give $15,000 to my kid number one, $15,000 to my kid number two, or another $16,000 to some relative. Right. Well, that's pretty so like I could give, so let's say I get 10 kids, every kid get $10,000. And then that's that's fine up to $70,000. So just to be clear, like you can give like more than $17,000. But if you do that, you had to file like a tax form, just to kind of notify the IRS here, I did give this much, but there's no taxes involved, but you just had to notify the IRS and push more than $17,000. And then when they let's say that I give everybody a bit, let's just, well, let's just say I give everybody a quarter of a Bitcoin. And then they go out and they take that quarter of Bitcoin and they buy, I don't know, the worst type of Lambo you can think of. So is there a taxable event there when they actually spend it or no? Because it's a gift. Yeah. So generally speaking, like, you know, you want to give appreciated assets to people, like, you know, meaning like, you know, in your case, let's say you bought a Bitcoin for $1,000, you gifted it to somebody when it's worth, let's say $30,000. So in that case, the recipient of the gift gets your carryover base, which is, you know, $1,000. So if he spends, if he sells the Bitcoin at $30,000, then you would have a $29,000 gain or depending on the sales price. So that's how it would work. Okay. I thought I found a loophole. Damn it. All right. Well, Shehan, again, thanks for stopping by on the show. Everybody, if you're looking again for that, for that network, I'll put a link in the description also for the regulations right there. And that will conclude it for this piece. Shehan, before we take off though, you've been in the crypto game for quite some time, any words of wisdom for the weary investors out there? So going back to the gift example, Rob, the loophole is this. So in my example, your kid could be subject to a lower tax rate on that $29,000 gain versus you. So that is the advantage. That's true because if like, let's say that Shehan is a multi-millionaire, maybe to his kid, and this kid only makes $29,000, well, yeah. Well, that's good to know. That is the greatest advice we can do. All right, everybody. So again, Shehan, thanks for stopping by. Everybody, if you like today's video, give it a thumbs up, consider subscribing. Everything we talk about is time sensitive. That's it for today. Thank you so much, Shehan. And of course, we will see you guys in the next one. Thank you.