Blockchain Association sends letter opposing IRS broker rule

The Internal Revenue Service’s (IRS) proposed broker-dealer rules are once again being contested by the Blockchain Association, this time focusing on the excessive burden they would place on investors, cryptocurrency companies, and the IRS itself. In a letter, the industry advocacy group cited the Paperwork Reduction Act, which prohibits regulators from imposing unnecessary and complicated paperwork requirements on individuals and entities in the financial system. The Blockchain Association argued that enacting these rules would result in the processing of 8 billion 1099-DA tax forms, wasting 4 billion hours of labor, and incurring an annual compliance cost of $254 billion. These figures significantly differ from the IRS’s earlier projections, which estimated that the new regulations would only require 0.15 hours per customer to complete, with a total compliance cost of $136,350,000. The association also stated that imposing an annual compliance cost of $245 billion was unreasonable for an asset class and markets that generate, at most, a tax gap of $10 billion. In 2023, the Blockchain Association submitted a detailed objection letter to the IRS, outlining various concerns regarding the proposed broker regulations. The group argued that the broker reporting rule was an overreach by the government and highlighted the difficulties faced by decentralized finance protocols in complying with these rules. They also pointed out that US government officials had a fundamental misunderstanding of cryptocurrencies, digital assets, and decentralized finance, which hindered their ability to comprehend the transformative impact of blockchain technology. The proposed tax rules and reporting requirements have faced significant opposition from the crypto community, with many expressing their dissatisfaction with the out-of-touch requirements. Jerry Brito, the executive director at Coin Center, echoed the objections raised in the Blockchain Association’s letter, emphasizing the logistical challenges of applying these reporting requirements to decentralized networks and their participants.