The crypto industry has reacted to the proposed tax reporting rules put forward by the Treasury. The proposed regulation in collaboration with the Internal Revenue Service (IRS) will require crypto brokers to be treated in the same way as brokers for traditional investments like stocks and bonds.
More than 120,000 letters have been sent in protest already since announcement of the rule proposal, some of which argue that the rule spreads the definition of broker too far. Players in the crypto industry and others during a Monday hearing by the IRS spoke about the impact of the rule.
The Blockchain Association’s senior counsel Marisa Copel on Monday during the hearinf said the proposal is overly broad, particularly as it touches decentralized finance (DeFi), adding that it should be limited to centralized firms.
Copel argued that DeFi developers are not capable of complying with the proposed rule, as they don’t have access to users’ information as is the case with centralized exchanges.
“This proposal sweeps in parties whose only means of compliance would be to abandon the decentralized technology that makes them unique,” Copel said. “This construction will drive all U.S. based decentralized projects abroad or out of existence, full stop,” he added.
Copel said the rule also raises “several constitutional concerns” including vague definitions and privacy concerns.
Proposed Rule Receives Backing
Among those who spoke on the proposed rule on Monday was a tax preparer for a small firm, Ryan Leverett. In his opinion, the rule needs to be put in place because of bad actors in the crypto industry.
“As it stands now, the crypto space has seen too many instances of dishonest or shady companies, most famously FTX, that have taken advantage of reduced regulations around the space, to con their clients and investors out of their money and digital assets,” Leverett said. “This proposed rulemaking would be a good step in the direction of reining in the Wild West of digital assets as it exists now,” he added.
One of the letters sent in also agrees with Ryan that the rule is necessary, but stresses the need to “strike a balance that respects individuals’ privacy rights.”
“While the proposed regulations aimed at aiding in the determination of amount realized and basis for certain digital asset transactions are commendable, it is imperative that privacy and safety be given due weight,” they said. “Balancing the need for transparent reporting with protecting the personal information of citizens is a delicate task but one essential to preserving the rights and liberties that define our great nation.”
A “Confusing, Self-refuting, and Misguided” Rule
One of the firms that sent in letters, the DeFi Education Fund said in its own letter that the proposed rule stretches the definition of a broker beyond its constitutional limits. He also added that the Treasury was using the term “digital asset middleman” to refer to every blockchain participant as a technology stack broker.
“The bottom line is that this proposal is confusing, self-refuting, and misguided. It attempts to ossify the antiquated structure of financial services by forcing businesses to fundamentally change their operations to become intermediating brokers, an idea that flouts Congressional intent and Constitutional protections,” said Miller Whitehouse-Levine, CEO of the fund in a statement.
The new proposed rules came following unfortunate incidents in the crypto space such as the collapse of FTX and the TerraUSD stablecoin. It could be in a bid to also tighten crypto regulation as the SEC is already doing, but the proposal is facing a lot of opposition already.