The Blockchain Association is once again objecting to the Internal Revenue Service’s (IRS) proposed broker-dealer rules; this time focusing on the undue burden the rules would impose on investors, cryptocurrency companies, and the Internal Revenue Service itself.
In the letter, the industry advocacy group cited the Paperwork Reduction Act, which states that government regulators must not burden individuals and entities involved in the financial system with unnecessary and obtuse paperwork requirements.
Spokespeople for the Blockchain Association argued that signing these proposed rules into law would add 8 billion 1099-DA tax forms that must be processed, 4 billion hours in labor wasted to process the forms, and an annual compliance cost of $254 billion.
According to the figures outlined in the letter, the hefty compliance costs and labor burdens are a far cry from earlier IRS projections that estimated the new regulations would take 0.15 hours per customer to complete, with a total compliance cost of $136,350,000.
Moreover, the Blockchain Association concluded that imposing annual compliance costs of $245 billion was completely unreasonable for an asset class and markets that produce, at most, a tax gap of $10 billion.
The first objection letter from the Blockchain Association
In 2023, the Blockchain Association penned a 39-page letter to the IRS detailing a comprehensive list of objections to the government agency’s proposed broker regulations.
The industry advocacy group characterized the Internal Revenue Service’s proposed broker reporting rule as government overreach, explaining that certain entities within the blockchain ecosystem, namely decentralized finance protocols, would have a hard time, at best, complying with these rules.
Ultimately, the letter highlighted “fundamental misunderstandings” about cryptocurrencies, digital assets, and decentralized finance on the part of U.S. government officials, who struggle to wrap their minds around the paradigm shift introduced by blockchain.
Deeply unpopular with the crypto community
The proposed tax rules and reporting criteria from the Internal Revenue Service have triggered a backlash from the crypto community, as many individuals and institutions alike have voiced disdain for the out-of-touch requirements.
Echoing the objections in the Blockchain Association’s original letter, Jerry Brito, executive director at Coin Center, pointed to the logistical difficulties of imposing these reporting requirements on decentralized networks and their participants.