What's Shaping Innovation in the Digital Gaming Landscape?

Talking Trends

By fostering innovation, ensuring fair and stable markets, and equipping businesses to adapt to global trends, the U.S. remains at the forefront of economic leadership. As new challenges emerge, continued collaboration among lawmakers, regulators, and industry leaders will be essential to sustaining and strengthening America’s position in the global economy.

Gaurav Kandhari, Founder & President of ValueDo Life Sciences Consulting, Ron Ben-Zeev, CEO of World Housing Solution, and Ryan David Williams, Founding Partner of Ashbury Legal, join Jill Malandrino on Nasdaq TradeTalks to discuss how legislative priorities, regulatory frameworks, and commercial strategies are driving U.S. competitiveness.

While legislative priorities set broad objectives, regulatory frameworks turn these visions into actionable standards and practices. Effective regulations maintain market stability, ensure fair competition, and protect public interests, yet must strike a balance to avoid stifling innovation. U.S. commercial strategies, adopted by both private enterprises and public-private partnerships, translate legislative and regulatory intentions into marketplace realities.

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In your recent TradeTalks interview, you highlighted the recent momentum around crypto and digital asset regulations but cautioned that the tax element shouldn't fall behind. What kind of a framework would you like to see in the U.S. for taxes on crypto and, more broadly, digital asset transactions?

To start, the great news is that it does not appear to be falling behind, given the flurry of proposals we’ve seen, and the amount of attention and focus per the President’s Working Group Report.

I personally like under the priority legislative recommendations where the group suggests legislation be enacted to treat digital assets “as a new class of assets subject to modified versions of tax rules applicable to securities or commodities for federal income tax purposes” (noting exclusion of “currencies/cash equivalents”) as it generally aligns with what I’ve been suggesting the past few years and what we’ve been seeing in previous proposals such as the Responsible Financial Innovation Act, the Green Book proposals, etc.

The proposals in the Working Group’s report are generally industry/taxpayer favorable with the exception of the wash sale rules, which are likely the “pay for” the other provisions.

It was conveyed during my last round of meetings in DC that a tax framework  was a high priority, and it’s been nice to see that follow through. Hopefully, we can keep the momentum and maintain bipartisan support.

From your perspective, how should investors navigate the evolving tax landscape, especially since different regions have varying frameworks?

While there are certainly ways to be tax efficient, I’ve always been of the mindset that the Tax “tail” should not “wag the dog” on significant business/substantive decisions. Generally, if you’re paying income taxes, it’s because you’ve generated income, and that’s generally a good thing.

That being said, there are things to be mindful of today as we await a more comprehensive framework.

Revenue Procedure 2024-28 clarifies the IRS’ position on tracking digital assets’ cost bases by each “account or wallet.” The IRS also allows taxpayers a safe harbor to clean everything up prior to filing their 2025 income tax returns. Any taxpayers that have been aggregating all assets into a single or “universal” pool should consult their tax advisor/preparer.

You also noted that there are tax differences between custodial and non-custodial digital assets. Can you elaborate on the differences?

I wouldn’t say differences between custodial and non-custodial “assets” in that the assets themselves are actually different, but there are certainly differences in transacting on custodial vs. non-custodial platforms. The biggest difference is that you will receive a 1099 from a custodial platform and you will not receive any tax documentation from a non-custodial platform.

While there were regulations released for non-custodial platforms, they were quickly rescinded for a variety of reasons including the inability for these platforms to produce the required information and the concern that such reporting would deter these platforms from operating in the U.S.

Pivoting back to my first point, a taxpayer not receiving a Form 1099 will bear the onus of having to self-report all activity on those platforms.  While some types of information are usually available, there have been independent articles written (Pitfalls of Cryptocurrency Service Providers’ Tax Reporting) regarding the concerns of novice taxpayers, utilizing data/information not intended for tax reporting, operating solely on SaaS platforms without the proper tax advisor/preparer oversight.   

At EY, you are focused on technology-based approaches that simplify tax compliance for clients. Can you speak to some of the approaches that help your clients thrive in a rapidly evolving landscape?

Of course, and just to level set when we speak about compliance we’re doing so from a broker information reporting perspective, as well as on the income tax reporting side.

I’ll briefly touch on the broker reporting, where we’ve leveraged our experiences and solutions in assisting TradFis navigate the 1099-B reporting required for traditional securities to tailor a solution for digital asset brokers and the new Form 1099-DA. One of the major challenges we’ve addressed is the significant incremental volume of forms, raised during the comment period of the proposed regulations, for which we’ve built a reporting platform that can manage the volume of the largest global cryptocurrency platforms out there.

Enabling 1099 reporting is incredibly important – I always rely on the 1099s I receive from my banks – but the reality is that this will only cover transactions on custodial brokers. This yields a significant gap for taxpayers transacting directly on chain and through other decentralized / non-custodial platforms, including DeFi, Gaming, et al.

To address those needs, we’ve built a proprietary solution that can extract transactions directly from the blockchain / decentralized platforms, can API into centralized exchanges and digest 1099-DAs, and aggregate all activity in accordance with the new Rev Proc and all other existing IRS guidance, to produce a tax form (Form 8949) that can be aggregated with all other taxpayer activity.

Built out of the need from our significant (U)HNW individual clients, and enhanced significantly through our involvement assisting the FTX debtors during the post-bankruptcy proceedings, we have a comprehensive reporting solution that can cover scope and volume that many other platforms can’t, and was built and continuously supported by a Big Four accounting firm.

For many taxpayers having the right solution and right preparer will be paramount to navigating a very eventful time for this nascent but fascinating and rapidly evolving ecosystem.

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