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For two years, the cryptocurrency world has been waiting to see how the Internal Revenue Service (IRS) would implement the Infrastructure Investment and Jobs Act. Put simply, this law established new reporting requirements that risked setting a de facto ban on cryptocurrency mining and exposing millions of Americans to new felony crimes. The good news is that the IRS’s nearly 300-page proposal is not quite as bad as it could have been under the law. However, that is far from saying it is good policy. 

As citizens, companies, and consultants finish crafting their comment letters ahead of the October 30 response deadline, it’s important to take a step back and recognize why businesses should not be required to report customers to the government by default.

Recalling back to 2021, the Infrastructure Investment and Jobs Act was about building roads, bridges, and the like — it was not about cryptocurrency or financial reporting. It wasn’t until funding was desperately needed to offset spending that members of Congress slipped in two provisions to increase financial surveillance over cryptocurrency users. Their argument was that increasing surveillance would increase tax revenue, effectively accusing cryptocurrency users of tax evasion.

Related: New tax rules could mean a US exodus for crypto companies

At the time, the Joint Committee on Taxation estimated that the provisions would yield around $28 billion in tax revenue over 1 years. Without a way to replace the funding, attempts to remove the controversial reporting requirements were ultimately rejected.

The $28 billion figure was questionable at the time. And less than a year later, the Biden administration released its budget, which contained a vastly different estimate. In contrast to the $28 billion estimated by the Joint Committee on Taxation, the Biden administration estimated that only $2 billion would be received over the next 10 years. And now, even that number might be an overestimation as Treasury officials acknowledged that the estimates were based on a very different market.

The IRS summary of its proposal for imposing new data-collection requirements on cryptocurrency service providers. Source: U.S. Federal Register

With cost-offsetting out the window, what is left appears to be little more than another brick in the wall of U.S. financial surveillance.

The IRS’s proposal, again, doesn’t seem as bad as it could have been since the proposal does exclude miners and some software developers for now. Still, the proposal chooses a concerning path for deciding who should be required to report customers.

The premise seems to be partly based on “whether a person is in a position to know information about the identity of a customer, rather than whether a person ordinarily would know such information.” The proposal states that this distinction is made because some platforms “have a policy of not requesting customer information or requesting only limited information [but] have the ability to obtain information about their customers by updating their protocols.” For this reason, the proposal states that the IRS expects some decentralized exchanges and selfhosted wallets may be forced to report their customers’ private information.

In other words, even though businesses may have no reason to collect sensitive, personal information from customers, the baseline that the IRS is working with is whether they have the ability to do so. That may be somewhat limited given the focus is on businesses providing a service, but “the ability to collect information” seems to be little more than “collection by default.”

While concerning, this approach should not come as a surprise. The U.S. government has slowly been establishing broader financial reporting requirements with the Bank Secrecy Act, the Patriot Act, and many other laws and regulations. The provisions in the Infrastructure Investment and Jobs Act and the resulting proposal from the IRS are just the latest iteration of this expansive framework.

Related: Get ready for a swarm of incompetent IRS agents in 2023

Yet rather than continue to expand the range and depth of financial surveillance, now should be the time to question the premise as a whole. In a country where Americans are supposed to be protected by the Fourth Amendment, businesses should not be forced to report their customers to the government by default. Activities like using cryptocurrency for payments, receiving over $600 on PayPal after a garage sale, or getting a paycheck from a job should not put you on a government database.

Steering away from this surveillance status quo might require fundamental changes to U.S. law, but that’s not to say doing so is a radical idea. When surveyed by the Cato Institute, 79 percent of Americans said that it is unreasonable for banks to share financial information with the government and 83 percent said that the government should need a warrant to obtain financial information.

It is those principles that should guide the discussion forward. So, while the October 30 response deadline is just around the corner, commenters should weigh both what the proposal does and doesn’t say.

Furthermore, although the present focus is very much on the IRS, let’s not forget that the responsibility to fix both the current situation and the larger financial surveillance status quo lies in the halls of Congress. At the end of the day, the IRS is doing what Congress told it to do. So, it’s Congress that needs to step in to reform the system as a whole.

Nicholas Anthony is a policy analyst at the Cato Institute’s Center for Monetary and Financial Alternatives. He is the author of The Infrastructure Investment and Jobs Act’s Attack on Crypto: Questioning the Rationale for the Cryptocurrency Provisions and The Right to Financial Privacy: Crafting a Better Framework for Financial Privacy in the Digital Age.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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US Supreme Court will not review IRS case involving Coinbase user data

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US Supreme Court will not review IRS case involving Coinbase user data

US Supreme Court will not review IRS case involving Coinbase user data

A lower court ruling will stand in a case involving a Coinbase user who filed a lawsuit against the IRS after the crypto exchange turned over transaction data.

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First US staking ETF to launch Wednesday, giving investors exposure to Solana

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First US staking ETF to launch Wednesday, giving investors exposure to Solana

First US staking ETF to launch Wednesday, giving investors exposure to Solana

REX Shares will launch the first US staked crypto ETF this week, giving investors direct exposure to SOL with staking rewards.

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Government accused of ‘stark’ contradiction over position on Gaza genocide allegations

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Government accused of 'stark' contradiction over position on Gaza genocide allegations

The government has won a long-running legal challenge about its decision to continue allowing the sale of spare parts for F-35 fighter jets to Israel, while suspending other arms licences over concerns about international humanitarian law in Gaza.

But a key part of its case has highlighted mixed messaging about its position on the risk of genocide in Gaza – and intensified calls for ministers to publish their own assessment on the issue.

PM braced for pivotal vote – politics latest

Lawyers acting for the government told judges “the evidence available does not support a finding of genocide” and “the government assessment was that…there was no serious risk of genocide occurring”.

Therefore, they argued, continuing to supply the F-35 components did not put the UK at risk of breaching the Genocide Convention.

This assessment has never been published or justified by ministers in parliament, despite numerous questions on the issue.

Some MPs argue its very existence contrasts with the position repeatedly expressed by ministers in parliament – that the UK is unable to give a view on allegations of genocide in Gaza, because the question is one for the international courts.

For example, just last week Deputy Prime Minister Angela Rayner told PMQs “it is a long-standing principle that genocide is determined by competent international courts and not by governments”.

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Situation in Gaza ‘utterly intolerable’

‘The UK cannot sit on our hands’

Green MP Ellie Chowns said: “The government insists only an international court can judge whether genocide is occurring in Gaza, yet have somehow also concluded there is ‘no serious risk of genocide’ in Gaza – and despite my urging, refuse to publish the risk assessments which lead to this decision.

“Full transparency on these risk assessments should not be optional; it is essential for holding the government to account and stopping further atrocity.

“While Labour tie themselves in knots contradicting each other, families are starving, hospitals lie in ruins, and children are dying.

“The UK cannot sit on our hands waiting for an international court verdict when our legal duty under the Genocide Convention compels us to prevent genocide from occurring, not merely seek justice after the fact.”

‘Why are these assessments being made?’

“This contradiction at the heart of the government’s position is stark,” said Zarah Sultana MP, an outspoken critic of Labour’s approach to the conflict in Gaza, who now sits as an independent after losing the party whip last summer.

“Ministers say it’s not for them to determine genocide, that only international courts can do so. Yet internal ‘genocide assessments’ have clearly been made and used to justify continuing arms exports to Israel.

“If they have no view, why are these assessments being made? And if they do, why refuse to share them with parliament? This Labour government, in opposition, demanded the Tories publish their assessments. Now in office, they’ve refused to do the same.”

Read more:
‘All I see is blood’
‘It felt like earthquakes’
MPs want Ukraine-style scheme for Gazans

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Routes for Palestinians ‘restricted’

Judges at the High Court ultimately ruled the case was over such a “sensitive and political issue” it should be a matter for the government, “which is democratically accountable to parliament and ultimately to the electorate, not the court”.

Dearbhla Minogue, a senior lawyer at the Global Legal Action Network, and a solicitor for Al-Haq, the Palestinian human rights group which brought the case, said: “This should not be interpreted as an endorsement of the government, but rather a restrained approach to the separation of powers.

“The government’s disgraceful assessment that there is no risk of genocide has therefore evaded scrutiny in the courts, and as far as we know it still stands.”

Palestinians inspect the damage at an UNRWA school sheltering displaced people that was hit in an Israeli air strike, in Gaza.
Pic Reuters
A Palestinian woman sits amid the damage at an UNRWA school sheltering displaced people. Pic: Reuters
Image:
Pics: Reuters

What is the government’s position?

Government lawyers argued the decision not to ban the export of F-35 parts was due to advice from Defence Secretary John Healey, who said a suspension would impact the whole F-35 programme and have a “profound impact on international peace and security”.

The UK supplies F-35 component parts as a member of an international defence programme which produces and maintains the fighter jets. As a customer of that programme, Israel can order from the pool of spare parts.

Labour MP Richard Burgon said the ruling puts the government under pressure to clarify its position.

“This court ruling is very clear: only the government and parliament can decide if F-35 fighter jet parts – that can end up in Israel – should be sold,” he said.

“So the government can no longer pass the buck: it can stop these exports, or it can be complicit in Israel’s genocide in Gaza.

“On many issues they say it’s not for the government to decide, but it’s one for the international courts. This washing of hands will no longer work.”

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Dozens dead in Gaza after Israeli strikes

Israel has consistently rejected any allegations of genocide.

Prime Minister Benjamin Netanyahu branded a recent UN report on the issue biased and antisemitic.

“Instead of focusing on the crimes against humanity and war crimes committed by the Hamas terrorist organisation… the United Nations once again chooses to attack the state of Israel with false accusations,” he said in a statement.

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‘Gaza disinformation campaign is deliberate’

The UK government has not responded to requests for comment over its contrasting messaging to parliament and the courts over allegations of genocide.

But in response to the judgement, a spokesperson said: “The court has upheld this government’s thorough and lawful decision-making on this matter.

“This shows that the UK operates one of the most robust export control regimes in the world. We will continue to keep our defence export licensing under careful and continual review.

“On day one of this Government, the foreign secretary ordered a review into Israel’s compliance with international humanitarian law (IHL).

“The review concluded that there was a clear risk that UK exports for the IDF (Israel Defence Forces) in the Gaza conflict might be used to commit or facilitate serious violations of IHL.

“In contrast to the last government, we took decisive action, stopping exports to the Israeli Defence Forces that might be used to commit or facilitate serious violations of international humanitarian law in Gaza.”

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