IRS proposes unprecedented data-collection on crypto users
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.
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.
The IRS reports 1,726 comments received so far.
Those are rookie numbers.
Unless you want:
– Every crypto site and wallet to have your SSN, and
– Nodes, devs, governance, & LPs to be brokers in technical noncompliance,
Take 2 mins to use @LeXpunK_Army ‘s comment tool NOW https://t.co/USYAHKdxic pic.twitter.com/1d8ijWbjVG
— CryptoTaxGuy.ETH ⌐◨-◨ ️ (@CryptoTaxGuyETH) October 17, 2023
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.
The US Securities and Exchange Commission and crypto exchange Gemini have asked to pause the regulator’s suit over the exchange’s Gemini Earn program, saying they want to discuss a potential resolution.
In an April 1 letter to New York federal court judge Edgardo Ramos, lawyers representing the SEC and Genesis requested a 60-day hold on the case and that all deadlines be pulled “to allow the parties to explore a potential resolution.”
“In this case, the parties submit that it is in each of their interests to stay this matter while they consider a potential resolution and agree that no party or non-party would be prejudiced by a stay,” the letter states.
The lawyers added that a stay was in the court’s interest as “a resolution would conserve judicial resources” and proposed that a joint status report be submitted within 60 days after the entry of the stay.
The SEC sued Gemini and crypto lending firm Genesis Global Capital in January 2023, alleging they offered unregistered securities through the Gemini Earn program.
In March 2024, Genesis agreed to pay $21 million to settle charges related to the lending program, but the enforcement case against Gemini remains outstanding.
Letter from SEC and Genesis Global requesting extension of stay. Source: CourtListener
The letter did not specify what a possible resolution would entail, but the SEC has dropped several lawsuits it launched against crypto companies under the Biden administration, including against Coinbase, Ripple and Kraken.
Related: Will new US SEC rules bring crypto companies onshore?
In February, Gemini said the SEC closed a separate investigation into the firm as the regulator winds back its crypto enforcement under President Donald Trump.
“The SEC cost us tens of millions of dollars in legal bills alone and hundreds of millions in lost productivity, creativity, and innovation. Of course, Gemini is not alone,” Gemini co-founder Cameron Winklevoss said at the time.
OpenSea, Crypto.com and Uniswap, among others, have also recently reported that the SEC had closed similar probes into their companies that were investigating alleged breaches of securities laws.
Magazine: Bitcoin ATH sooner than expected? XRP may drop 40%, and more: Hodler’s Digest, March 23 – 29
Two Republicans who received a combined $1.5 million from the crypto-backed political action committee (PAC) Fairshake will enter the US House after winning special elections in Florida.
Republican Jimmy Patronis won the vacant seat in Florida’s 1st Congressional District to replace Matt Gaetz, taking 57% of the vote to defeat Democrat Gay Valimont, according to AP News data.
Randy Fine also took Florida’s 6th Congressional District with 56.7% of the vote to beat his Democratic rival, public school teacher Josh Weil, and fill a seat left vacant by Mike Waltz, who took a job as White House national security adviser.
Florida’s 1st and 6th Congressional Districts — located in Florida’s western panhandle and along the state’s northeast coast — have been controlled by Republicans for roughly 30 years, but their lead has narrowed in recent years.
Fairshake, a PAC backed by crypto industry giants including Coinbase, Ripple and Andreessen Horowitz, gave Fine around $1.16 million in advertising spending and funneled $347,000 to Patronis to support his campaign.
Both Republicans have expressed support for the crypto industry, with Fine stating in a Jan. 14 X post that “Floridians want crypto innovation!”
Source: Randy Fine
Fairshake and its affiliates poured around $170 million into the 2024 US presidential and congressional elections to back candidates who committed to supporting the crypto industry.
The wins by Patronis and Fine increased Republican representation in the House to 220 seats, with the Democrats holding 213 seats.
There are two vacant seats to be filled after Texas and Arizona Democrats Sylvester Turner and Raúl Grijalva died on March 5 and March 13, respectively.
Florida can expect to see a crypto-friendly regulatory environment
The victories for Patronis and Fine likely mean that crypto legislation will continue to see support in the US capital.
The Republican Party would have maintained its House majority even if it lost both seats in Florida, but it would have made it more difficult for some of the recently introduced Republican-backed crypto bills to pass through the House and Senate.
Related: Florida bill proposes strict rules against online gambling
At the Digital Assets Summit on March 18, Democratic Congressman Ro Khanna said he believes Congress “should be able to get” both a stablecoin and crypto market structure bill done this year.
Bills that could eventually make their way to the House include the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, which passed the Senate Banking Committee in an 18-6 vote on March 13.
Senator Cynthia Lummis also reintroduced a Bitcoin reserve bill about a week after the Trump administration announced the establishment of a Strategic Bitcoin Reserve on March 6, with the legislation referred to the Senate Banking Committee on March 11.
Magazine: Trump’s crypto ventures raise conflict of interest, insider trading questions
Several British trade associations have asked Prime Minister Keir Starmer’s office to appoint a special envoy dedicated to crypto and for a dedicated action plan for digital assets and blockchain technology.
In a March 31 letter, the coalition of six UK digital economy trade bodies urged Starmer’s special adviser on business and investment, Varun Chandra, for a “greater strategic focus and alignment to deliver investment, growth and jobs” for the crypto industry.
The group, which consisted of the UK Cryptoasset Business Council, Global Digital Finance, The Payments Association, Digital Currencies Governance Group, the Crypto Council for Innovation and techUK, noted the US policy shift on crypto under President Donald Trump and his appointment of a crypto czar.
Britain’s commitment to an economic trade deal focused on technological cooperation with the US “presents a significant opportunity to mirror the United States’ ambition in fostering leadership in blockchain, digital assets, and other emerging financial technologies,” the letter stated.
The group recommended that the UK appoint a blockchain special envoy, similar to the US, to coordinate policy, foster innovation, and position the country competitively in global markets.
The trade bodies also called for the development of a dedicated government action plan for crypto and blockchain technology, including a concierge service to attract high-potential firms.
They added that the government should acknowledge and leverage the commonalities between blockchain, quantum computing and artificial intelligence technologies, including potential applications for government services.
Another recommendation was to create a high-level industry-government-regulator engagement forum to ensure informed decision-making and cross-sector collaboration.
The UK crypto and tech associations lobbying the government for a policy shift. Source: LinkedIn
“With deep pools of talent, access to capital, world-class academic institutions, and sophisticated regulators, the UK provides an environment where digital assets and blockchain innovation can thrive,” they stated.
Related: UK should tax crypto buyers to boost stock investing, economy, says banker
The coalition argues that crypto and blockchain technology could boost the UK economy by 57 billion British pounds ($73.6 billion) over the next decade, with the sector potentially increasing global gross domestic product by 1.39 trillion pounds ($1.8 trillion) by 2030.
Tom Griffiths, the co-founder and managing partner of crypto compliance advisory firm BitCompli, said in response to the letter on LinkedIn that the Financial Conduct Authority “has a lot of talent and a good sight of future plans, but the UK is definitely losing pace with Dubai, Singapore, and other EU jurisdictions.”
“Now is the time for the FCA to act, or the UK will lose out on this huge opportunity, which is digital assets and all the benefits this sector can bring, not only now but over the next 20 years,” he added.
Magazine: Bitcoin ATH sooner than expected? XRP may drop 40%, and more: Hodler’s Digest, March 23 – 29
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