The Blockchain Association, a Washington DC-based advocacy group, has once again raised objections to the Internal Revenue Service’s (IRS) proposed broker-dealer rules. The group argues that these provisions would impose an undue burden on investors, cryptocurrency companies, and the IRS itself, violating the Paperwork Reduction Act.
Burden on Financial System Participants
In a detailed letter, the Blockchain Association highlighted the excessive paperwork and compliance burdens that the proposed rules would create. According to their analysis, implementing these rules would result in:
- 8 billion 1099-DA tax forms that must be processed
- 4 billion hours of labor wasted in processing these forms
- $254 billion in annual compliance costs
These figures starkly contrast with the IRS’s initial estimates, which projected that the new regulations would require just 0.15 hours per customer to complete, with a total compliance cost of $136.35 million.
Disproportionate Compliance Costs
The Blockchain Association’s letter also pointed out that the projected compliance costs of $254 billion are vastly disproportionate to the potential tax gap of $10 billion that the IRS aims to address. They concluded that imposing such hefty costs on the cryptocurrency industry is unreasonable.
Initial Objections and Government Overreach
This is not the first time the Blockchain Association has expressed concerns about the IRS’s proposed regulations. In 2023, they submitted a comprehensive 39-page letter detailing their objections. They characterized the IRS’s proposed broker reporting rule as an example of government overreach, arguing that entities within the blockchain ecosystem, such as decentralized finance (DeFi) protocols, would struggle to comply with these rules.
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The letter highlighted “fundamental misunderstandings” about cryptocurrencies, digital assets, and DeFi among U.S. government officials, who have difficulty grasping the paradigm shift introduced by blockchain technology.
Community Backlash
The proposed tax rules and reporting criteria have sparked significant backlash from the crypto community. Many individuals and institutions argue that the requirements are out of touch with the operational realities of decentralized networks. Jerry Brito, executive director at Coin Center, echoed the Blockchain Association’s concerns, emphasizing the logistical difficulties of imposing these reporting requirements on decentralized networks and their participants.
