Blockchain Association Criticizes IRS’s Proposed Broker Rule

Blockchain Association Criticizes IRS’s Proposed Broker Rule, Highlights Massive Burden. On June 21, the Blockchain Association criticized the IRS’s proposed broker rule, calling it an excessive $254 billion burden for a potential $10 billion tax gap. They submitted a comment letter under the Paperwork Reduction Act (PRA) in response to this proposed rule.

Concerns Over Proposed Broker Rule

The Blockchain Association argues that finalizing the rule, which would require the submission of over 8 billion forms, violates the PRA. Marisa Tashman Coppel, an official of the association, pointed out that the PRA is meant to protect the public from regulatory burdens related to information collection by federal agencies.

The PRA requires agencies to minimize the public’s burden as much as possible, which the proposed rule does not achieve. The association claims that the IRS’s assumption of 30 minutes per form translates to four billion burden hours. This would add almost a third to the overall paperwork burden imposed by the U.S. federal government. This calculation indicates that the IRS has underestimated the time and costs for brokers to comply with the rule.

Financial Implications of the Proposed Rule

The IRS estimated the cost to complete each form at $63.53 per hour. With four billion hours needed, the total cost would exceed $254 billion. This amount is much higher than the potential tax revenue, even if all global crypto revenue is taxed at the highest rate, resulting in a gap of around $10 billion.

The Blockchain Association asserts that spending $254 billion to close a $10 billion gap is unreasonable. Marisa Tashman Coppel noted that the proposed rule and the associated Form 1099-DA do not meet the requirements of the PRA. The IRS has significantly underestimated the time and financial constraints placed on brokers by this process.

IRS’s New Tax Form 1099-DA

Recently, the IRS published an early version of the new tax form, Form 1099-DA, for reporting cryptocurrency transactions. According to the IRS, this form is designed to enhance tax compliance for brokers and customers dealing in virtual assets.

Expert Insights on the Proposed Rule

Jake Chervinsky, Chief Legal Officer at Variant Fund, hinted at the possibility of a lawsuit against the IRS over this tax issue. He criticized the IRS’s use of financial surveillance to enforce tax compliance, arguing that the agency fails to recognize the potential of technologies supporting peer-to-peer (P2P) transactions.

Perianne Boring, Chief Executive Officer of the Chamber of Digital Commerce, provided her input on the latest draft of the IRS’s Form 1099-DA. Boring sided with the IRS, explaining that the initiative aims to extend the regulatory scope to unhosted wallets and consolidate Know Your Customer (KYC) rules for crypto sales and exchanges using brokers. She believes this aligns with the IRS’s continued push for compliance and disclosure in the cryptocurrency space.

Conclusion

The Blockchain Association’s critique highlights the massive burden that the IRS’s proposed broker rule could place on brokers. With the potential $254 billion cost far outweighing the $10 billion tax gap, the association urges the IRS to reconsider the rule. Meanwhile, the debate continues, with experts providing varying perspectives on the implications of the proposed rule and the new Form 1099-DA for the cryptocurrency market.

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