In a recent development, the US Department of the Treasury and Internal Revenue Service (IRS) have released proposed regulations that deems the brokers of digital assets accountable. This obligation requires the brokers to report certain sales and exchanges, serving as both a measure to control tax evasion and assist citizens in assessing the amount they owe in taxes.
The domain of digital asset tax calculation has been both a troubling and costly affair for the US, hence, the proposed regulations aim to rectify this issue. Under the administration’s new proposal, brokers will be obliged to issue a new Form 1099-DA. Intended to aid taxpayers in determining their tax dues, this will eliminate the need to employ complicated calculations or rely on digital asset tax preparation services. In principle, these regulations are designed to equate tax reporting on digital assets with that on securities and other financial assets, ensuring a lack of partial treatment between different asset types.
In case the proposed rules receive approval, they would necessitate top cryptocurrency exchanges to report customer information to the IRS, providing yet another security measure. For those interested in contributing to the conversation, a public comment period is fully open for engagement, with a public hearing due for the 7th and 8th of November.
Not everyone views these regulations in a favorable light. The chairman of the House Financial Services Committee, Patrick Henry, criticized the Biden administration for attempting to “kill” crypto adoption in the US. The reason for such an accusation lies in the scope of these proposed regulations, which also target Decentralized Exchanges (DEXs). Unlike centralized exchanges, DEXs are not controlled by a single authority and rely on smart contracts deployed on decentralized blockchain protocols.
Notorious crypto enthusiasts have echoed Patrick Henry’s sentiment. Gabriel Shapiro, General Counsel at Delphi Metaverse Labs, pointed out on his social media that these rules could potentially debilitate the usage of P2P protocols. A similar viewpoint was voiced by Blockchain Association CEO Kristin Smith, who stressed that the proposed rules would cause platforms or protocols to centralize, thus compromising the benefits of decentralization, such as security and transparency.
While some might view these as fair additions, bringing digital asset reporting requirements on par with other asset classes, others perceive them as an attempt of excessive government control over crypto. The core principle of crypto is decentralization, a value that no self-respecting DEX protocol would voluntarily forego. This could potentially trigger an outright ban on using these DEXs in the US for American citizens, stifling the growth of web3 adoption domestically.