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Haider Jamal

Aug 27, 2023

Crypto Community Lambastes Sweeping Tax Proposal

The recently revealed tax plan for crypto gains in the United States faced criticism by the crypto community right after its release. The objections came particularly via individuals connected to decentralized operations categorized as brokers.

The prompt backlash by the crypto sector demonstrates that the new approach by the U.S. Treasury Department for managing taxes related to digital assets will encounter challenges as it goes through a prolonged phase of public comments and hearings.

 

A Flawed Plan

X, formerly known as Twitter, swiftly filled with grievances regarding the extent of the aforementioned plan, mainly focusing on how the tax reporting requirements might encompass decentralized crypto activities that are seen as unfeasible to conform with.

Miller Whitehouse-Levine, the CEO of a lobbying group for DeFi, expressed on the social media platform that the proposal is overly broad in its current iteration. He highlighted sections that could encompass a wide range of entities, such as self-hosted wallets. He noted that although the proposal acknowledges that users of self-hosted wallets carry out their own transfers, it still attempts to hold third parties accountable for these transfers.

Another individual on the platform pointed out that wallet providers like Metamask, decentralized exchanges like Uniswap, and any smart contract utilizing a multisignature security setup might fall under the obligations of the reporting requirements. This would necessitate these entities to establish new know-your-customer regulations for their users.

 

Room For Improvement

Congressman Patrick McHenry (R-N.C.), Chair of the House Financial Services Committee, conveyed in a statement that while he appreciated the inclusion of the effective date and specific exemptions, he found the proposed rulemaking deficient in various other aspects. He highlighted that after the passing of the Infrastructure Investment and Jobs Act, lawmakers emphasized that any proposed rule should be precise and limited in scope, which he believed this proposal failed to achieve.

Kristin Smith, CEO of the Blockchain Association, stated shortly after the release of the proposal that the crypto ecosystem differs significantly when compared to traditional assets, implying that regulations must be adapted accordingly to avoid affecting ecosystem participants without a feasible way to comply. She acknowledged that the forthcoming regulations could offer clarity for numerous crypto investors to accurately fulfill tax requirements, ultimately removing a substantial barrier to participating in digital assets.

Smith mentioned that, if executed correctly, these regulations could equip everyday crypto users with the necessary guidance to adhere to tax laws. The industry has until October 30th, 2023, to voice their concerns to the Treasury and Internal Revenue Service, followed by public hearings on November 7th and 8th. The drafters of the proposal included sections in the comprehensive document that invite input by the crypto industry.

One immediate positive aspect however is the general exclusion of crypto mining operations, alleviating concerns that arose when the 2021 infrastructure law established tax regulations.

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