Thursday, July 18, 2024

IRS Broker Rule Faces Pushback from Blockchain Association

The Blockchain Association, a leading cryptocurrency industry advocacy group, is reigniting its fight against the Internal Revenue Service’s (IRS) proposed broker-dealer reporting rules. This time, their focus is on the excessive burden these rules would place on investors, cryptocurrency companies, and even the IRS itself.

In a formal letter to the IRS, the Blockchain Association cites the Paperwork Reduction Act. This law restricts government regulations that burden financial systems with unnecessary paperwork. The Association argues the proposed rules would trigger an avalanche of new 1099-DA tax forms – an estimated 8 billion annually. Processing these forms, according to the Association, would require a staggering 4 billion hours and incur a yearly compliance cost of a whopping $245 billion.

These figures stand in stark contrast to the IRS’s own initial estimates. The agency originally projected the new regulations would only take 0.15 hours per customer to complete, with a total annual cost of a mere $136 million. The Blockchain Association highlights this massive discrepancy as evidence of the impracticality of the proposed rules.

Furthermore, the Association argues that imposing $245 billion in annual compliance costs is simply unreasonable. This immense expense is targeted at an asset class estimated to generate a tax gap of no more than $10 billion annually. In simpler terms, the cost of enforcing the new rules would be vastly outweighed by the potential tax revenue generated.

This isn’t the Blockchain Association’s first foray into this battle. In 2023, they sent a comprehensive 39-page letter to the IRS, outlining their concerns. The letter criticized the proposed regulations as government overreach, particularly in regards to decentralized finance (DeFi) protocols. The Association contends these protocols are inherently difficult to regulate due to their decentralized nature.

They further argue that the proposed rules expose fundamental misunderstandings on the part of the US government concerning cryptocurrencies, digital assets, and DeFi. The Association believes officials struggle to grasp the paradigm shift brought about by blockchain technology.

Crypto Community Stands United

The IRS’s proposed tax rules have ignited a firestorm of disapproval within the cryptocurrency community. Many individuals and institutions have spoken out against the impractical and cumbersome reporting requirements.

Jerry Brito, Executive Director at Coin Center, echoes the Blockchain Association’s concerns. He emphasizes the logistical impossibility of imposing these reporting requirements on decentralized networks and their participants.

The Blockchain Association’s latest challenge signifies a crucial battle for the future of cryptocurrency taxation. Their arguments highlight the potential for stifling innovation and hindering mainstream adoption of cryptocurrencies. As the debate continues, it remains to be seen whether the IRS will listen to the concerns of the crypto industry and find a more practical approach to regulating crypto taxation.

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Author: Sb

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Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial or investment advice. Cryptocurrency investments are subject to market risks, and individuals should seek professional advice before making any investment decisions.

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