The Blockchain Association has once again lodged a complaint against the Internal Revenue Service’s (IRS) proposed broker-dealer regulations, this time focusing on the excessive burden the rules would place on investors, cryptocurrency companies, and the IRS itself.
In the letter, the industry advocacy group cited the Paperwork Reduction Act, which states that government regulators should not burden individuals and entities in the financial system with unnecessary and complex paperwork requirements.
Representatives of the Blockchain Association argued that implementing these proposed rules would result in the processing of 8 billion 1099-DA tax forms, 4 billion hours wasted on form processing, and an annual compliance cost of $254 billion.
According to the figures outlined in the letter, the significant compliance costs and labor burdens are far from the earlier IRS estimates, which projected that the new regulations would require 0.15 hours per customer to complete, with a total compliance cost of $136,350,000.
Additionally, the Blockchain Association concluded that imposing annual compliance costs of $245 billion was completely unreasonable for an asset class and market that, at most, generates a tax gap of $10 billion.
The Blockchain Association’s first objection letter
In 2023, the Blockchain Association sent a 39-page letter to the IRS, outlining a comprehensive list of objections to the agency’s proposed broker regulations.
The industry advocacy group described the IRS’s proposed broker reporting rule as an overreach of government power, explaining that certain entities in the blockchain ecosystem, particularly decentralized finance protocols, would struggle to comply with these rules, if at all.
The letter emphasized the “fundamental misunderstandings” about cryptocurrencies, digital assets, and decentralized finance among US government officials, who find it challenging to comprehend the paradigm shift introduced by blockchain.
Unpopular within the crypto community
The proposed tax rules and reporting criteria from the IRS have sparked a backlash from the crypto community, with many individuals and institutions expressing their dissatisfaction with these out-of-touch requirements.
Echoing the objections raised in the Blockchain Association’s original letter, Jerry Brito, executive director at Coin Center, highlighted the logistical difficulties of imposing these reporting requirements on decentralized networks and their participants.