Industry Leaders Fight Back As US Treasury’s Tax Reporting Plan Sparks Outcry

The cryptocurrency realm is mounting a resilient resistance against impending regulatory proposals seeking to broaden the scope of entities obliged to disclose specific digital currency transactions.

In August, the draft of the proposed guidelines was posted by the US Treasury Department, with the aim of mitigating challenges associated with the reporting and taxation of cryptocurrency transactions.

Critics now argue that such measures pose a formidable obstacle to the broader crypto market and decentralized finance, raising constitutional apprehensions in the process.

Advocates contend that DeFi platforms operate on the principles of autonomy, allowing users to transact without traditional intermediaries.

The Blockchain Association: No To Tax Proposals 

The Blockchain Association, an advocacy group for cryptocurrencies based in the United States, has sent in a comment letter mostly opposing the tax laws that the Internal Revenue Service (IRS) recommended.

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

Some of the over 124,000 letters submitted (including 2,000 in the last two days) argue that the recommended rules push the definition of a broker too far in regulations brought forth during the summer.

The Blockchain Association asserted that numerous participants within the cryptocurrency sphere would face challenges in adhering to the stipulated guidelines if implemented.

Specifically, the group argued that a substantial portion of those engaged in decentralized finance (DeFi) would encounter significant hurdles in achieving compliance, contending that they were essentially incapable of doing so.

As of today, the market cap of cryptocurrencies remain unchanged at $1.37 trillion. Chart: TradingView.com

The group said that the Treasury had overreached itself with the proposed regulations, perhaps violating constitutional rights, especially those concerning freedom of speech and privacy.

According to Marisa Copel, senior counsel for the Blockchain Association, the proposal’s overarching nature should be refined to focus exclusively on centralized entities.

She emphasized that developers of DeFi protocols and non-custodial wallets face inherent challenges in adhering to the proposed rule.

Copel also highlighted a crucial distinction, pointing out that DeFi software facilitates user connections but doesn’t “effectuate transactions” akin to a traditional broker. Consequently, these developers lack access to the information necessary for the prescribed reporting.

The US Treasury faces growing opposition from crypto industry leaders for its tax proposals. Image: iStock

Copel raised a poignant concern, stating that the proposal, if enforced, could force US-based decentralized projects to either relocate internationally or cease operations altogether, as compliance would necessitate abandoning the very decentralized technology that defines their uniqueness.

Kristin Smith, the CEO of the Blockchain Association, emphasized the distinct nature of the crypto ecosystem compared to traditional assets. She stressed the need for rules that are specifically crafted to suit this unique environment, ensuring they do not unintentionally encompass participants without a clear path to compliance.

Treasury & IRS released proposed regulations on the sale and exchange of digital assets by brokers:https://t.co/u6TewiS7tV

— DeFi Education Fund (@fund_defi) August 25, 2023

For her part, DeFi Education Fund CEO Miller Whitehouse-Levine, said the IRS’s current proposal is perplexing, contradictory, and misguided, as it seeks to enforce regulatory frameworks based on the presence of intermediaries in situations where they are absent.

The hearing scheduled for Monday will be conducted solely in audio format. It aims to convene notable proponents of cryptocurrency to present their perspectives on the proposed framework outlining the reporting of transactions by crypto brokers and investors to the IRS.

Featured image from Pixabay