SEC Cancels Cryptocurrency Tax Guidance Document Amid Public Backlash

SEC Rescinds Controversial SAB 121, Directing Firms to Use Existing Accounting Standards

The U.S. Securities and Exchange Commission (SEC) has published a new Staff Accounting Bulletin (SAB 122), rescinding its previous guidance on accounting for cryptocurrencies. The controversial SAB 121, which was introduced in 2022, required banks and other public companies to mark customers’ Cryptocurrency“>crypto assets[/highlight] on their own balance sheets.

Withdrawal of SAB 121

The SEC has withdrawn SAB 121, citing the need for firms to use existing accounting standards when dealing with cryptocurrencies. The new guidance directs entities to use either Financial Accounting Standards Board (FASB) rules or International Accounting Standard (IAS) provisions. This change is seen as a significant shift in policy, which may have far-reaching implications for the crypto industry.

Background and Controversy

The original SAB 121 was introduced with the support of former SEC Chair Gary Gensler, who argued that it would protect investors in the event of bankruptcies. However, the guidance drew widespread criticism from the crypto industry, with many arguing that it was overly broad and could stifle innovation.

SEC Commissioner Hester Peirce, a long-time critic of SAB 121, has welcomed the withdrawal of the guidance. She argued that the original bulletin did not account for the SEC’s lack of guidance on how securities laws apply to cryptocurrencies, and that an accounting bulletin may not be the right vehicle for such guidance.

Impact on the Crypto Industry

The withdrawal of SAB 121 is seen as a significant victory for the crypto industry, which has been critical of the original guidance. The change in policy may lead to increased investment and innovation in the sector, as firms are no longer required to mark customers’ Cryptocurrency“>crypto assets[/highlight] on their balance sheets.

The SEC’s decision to rescind SAB 121 is also seen as a sign of the agency’s willingness to engage with the crypto industry and adapt its policies to reflect changing market conditions.