The Internal Revenue Service (IRS) held an audio-only hearing today to gather views from the crypto industry regarding the proposed new tax approach for cryptocurrencies. The concerns raised by digital asset advocates include user privacy, the reporting requirements for crypto entities, the inclusion of stablecoins, and whether the proposal implies that digital assets should be considered securities.
The crypto sector argues that the IRS’s proposed taxation regime poses a threat to investor privacy and decentralized crypto projects. Following a comment deadline and a public hearing on Monday, the IRS will have to sift through over 120,000 comments, including those generated by campaigns such as the LeCpunK Army’s “Treasury Raid.” The agency will consider these comments before finalizing the new taxation system.
The focus of industry criticism lies in how the proposal defines a “broker” that must comply with reporting requirements. The DeFi Education Fund argues that the proposal stretches the statutory language too far and could treat every participant in the blockchain technology stack as a broker. The IRS’s attempt to include decentralized finance platforms, decentralized autonomous organizations, wallet providers, and payment processors in the reporting regime has also drawn criticism. Americans for Tax Reform argues that the IRS’s definition of brokers encompasses entities that are incapable of providing the required tax information.
Another major concern raised by the industry is investor privacy. Coinbase, a leading crypto brokerage, argues that the proposed regulations would result in unprecedented government surveillance and tracking of Americans’ daily lives. Lawrence Zlatkin, Coinbase’s vice president for tax, states that the regulations would allow the government to monitor personal health care decisions and even the purchase of a cup of coffee.
Despite these objections, there are some positive aspects to the proposed tax approach. Establishing clear rules and reporting requirements would eliminate the uncertainty surrounding tax obligations for crypto investors, which has been a significant barrier to wider adoption. The proposal includes the creation of a bespoke tax form similar to the 1099s used by stock market investors. If the IRS rule is passed before any crypto proposals from the U.S. Securities and Exchange Commission (SEC), it would mark a significant step towards establishing an official status for digital assets in U.S. finance.
However, the sheer volume of comments received for this proposal may require more time than usual for federal agencies to review and complete the rule-making process. Tens of thousands of individuals have submitted objections, highlighting the importance of considering and addressing these concerns.
Other complaints regarding the proposal focus on the inclusion of stablecoins as reportable assets and the potential implications for securities regulation. Nicolas Morgan, president of the Investor Choice Advocates Network, has called on the Treasury Department to clarify that this rule does not apply to securities law.
In conclusion, the IRS’s proposed tax approach for cryptocurrencies has generated significant debate within the crypto industry. While concerns about investor privacy and the broad definition of brokers have been raised, establishing clear rules for reporting gains could benefit the wider adoption of digital assets. The IRS will carefully consider the comments received before finalizing the new taxation system.