The recent proposal that the United States Treasury Department put forward regarding taxes on digital assets has immediately sparked criticism within the cryptocurrency industry. On the other hand, an exhaustive review procedure will subject this proposition to a process taking several months, involving public hearings and comments.
Backlash quickly filled the digital landscape, with particular focus on the tax-reporting requirements. Many people in the industry argue that the requirements could encompass decentralized cryptocurrency activities that are inherently difficult to regulate.
Miller Whitehouse-Levine, the chief executive officer of a lobbying organization for decentralized finance (DeFi), stated on social media that the proposal’s current language is excessively broad and has the potential to affect a large number of different entities. He used the example of self-hosted wallets to illustrate how the proposal attempts to attribute responsibility for wallet transfers made by wallet users to a third party, which leads to confusion regarding the meaning of the term “effectuating.”
Further discussion revealed that wallet providers such as Metamask, decentralized exchanges such as Uniswap, and even smart contracts equipped with multisignature security setups might be subject to the proposed reporting requirements. Because of this, it would be necessary to draft brand new know-your-customer regulations for the people who use these entities.
The chief executive officer of the Blockchain Association, Kristin Smith, made the observation that the ecosystem surrounding cryptocurrencies is very different from that surrounding traditional assets. She also emphasized the significance of developing specialized regulations in order to avoid including ecosystem participants who do not have a feasible compliance pathway. Her statement was made not long after the proposal was presented to the public.
However, Smith also acknowledged the flip side of this situation, which is that the forthcoming regulations could potentially offer the larger population of crypto investors a straightforward route to fulfilling their tax obligations. For individuals interested in engaging in the digital asset space, this is significant news, as historically, fulfilling tax obligations has posed a notable obstacle.
According to Smith’s statement, “if executed properly, these regulations might offer ordinary cryptocurrency users the necessary guidance to accurately adhere to tax regulations.”
The industry has an extended deadline until October 30 to voice their concerns to the Treasury and the Internal Revenue Service, and public hearings are set for November 7 and 8. Notably, the authors of the proposal included a section in the comprehensive document asking for input and suggestions from the crypto community. This is an important aspect of the proposal.
The general exclusion of cryptocurrency mining operations is an initial positive aspect of the proposal’s scope. This exclusion helps alleviate concerns that arose as a result of the introduction of tax rules in the 2021 infrastructure law.