The crypto industry is up in arms over a controversial new proposal from the Internal Revenue Service (IRS) that aims to establish a taxation framework for digital assets. The proposal has attracted a flood of over 120,000 public comments, mostly opposing the new rules.
Keypoints
- The IRS held an audio-only hearing to gather views from the crypto industry on a proposed new tax approach for cryptocurrencies.
- The industry has major concerns about the proposal, including threats to user privacy, the broad scope of crypto entities that would have to report transactions, the inclusion of stablecoins, and whether it implies cryptocurrencies are securities.
- The proposal defines “broker” broadly, which could require tax reporting from decentralized organizations like DeFi platforms and DAOs that would have difficulty complying.
- Over 120,000 public comments were submitted on the proposal, showing significant opposition from the crypto industry.
- Industry groups argue the IRS is overstepping its authority and the proposal could violate privacy rights and harm innovation.
- Despite objections, having clear crypto tax rules could eliminate uncertainty and facilitate wider crypto adoption. The proposal would establish a new tax form for reporting crypto gains.
- If finalized before SEC crypto regulations, this proposal would be the first major official framework for crypto’s status in US finance.
At an IRS hearing on Monday, crypto advocates laid out arguments against the proposal, which outlines reporting requirements for crypto “brokers” and investors. But the industry argues the rules are too broad, threaten privacy, and could harm innovation.
A major concern is the expansive definition of “broker” which would rope in decentralized finance (DeFi) platforms, decentralized autonomous organizations (DAOs), and wallet providers. These entities would have difficulty complying with tax reporting. Industry groups say the IRS is overstepping its authority by trying to regulate decentralized tech.
Today we filed a comment in response to Treasury’s proposed broker rule.
The proposed regulations reflect fundamental misunderstandings about the nature of digital assets and decentralized technology, more broadly.@MTCoppel breaks down our comment ????https://t.co/zgNhwWREf3 https://t.co/ul7JTvCt5q pic.twitter.com/UfkR4bKaJn
— Blockchain Association (@BlockchainAssn) November 13, 2023
The rules could also undermine user privacy by allowing extensive government tracking of crypto transactions. Some claim this is an unprecedented invasion of Americans’ personal lives and decisions.
However, establishing a clear crypto tax framework would eliminate uncertainty and could facilitate wider adoption. The proposal introduces a new tax form for reporting crypto gains, similar to existing forms for stock investors.
If finalized before SEC crypto regulations, the IRS proposal would be the first official framework recognizing cryptocurrencies’ status in US finance. But with major industry opposition, the IRS will need to carefully weigh feedback before proceeding. The crypto sector argues the rules must be significantly narrowed to protect innovation and civil liberties.
This battle underscores the challenges of regulating a novel technology like crypto. But clear tax policy remains critical for growing the industry within the bounds of law. The coming months will determine if the IRS and crypto community can reach a workable compromise.
