IRS proposal to track your Uniswap transactions will dampen the crypto industry

Published

12 months ago

November 30, 2023

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The United States Internal Revenue Service (IRS) is considering a proposal that would have sweeping consequences for the cryptocurrency industry. Investors should be concerned, because it could significantly impact the way that individuals — both inside and outside America — are allowed to engage with digital assets.

The IRS is proposing an initiative under Section 6045 of the tax code to establish new tax rules for the treatment of cryptocurrency providers. Specifically, the agency is seeking to amend the law to expand the definition of “brokers” to include nearly all crypto-service providers — including, for instance, decentralized exchanges (DEXs) and wallet providers. Those providers would be required to collect personal information from users beginning in 2025, and to begin sending (a still-unreleased) Form 1099-DA to the IRS in 2026. It would be a crypto-focused version of the 1099-MISC.

The IRS’s move to redefine “broker” is not just a regulatory tweak but a fundamental shift that could reshape the entire U.S. cryptocurrency landscape. By potentially including a wide array of cryptocurrency service providers under this definition, the IRS is extending its reach significantly. This expansion means that many more entities involved in digital asset transactions, from wallet providers to small-scale developers, could be required to report user information and transaction details to the government.

*Example of a Form 1099-MISC. Source: Glassnode*

For users and investors in the cryptocurrency space, this change could translate into increased reporting and compliance obligations — rolling back the anonymity and flexibility they currently offer users. For service providers, it would require the adoption of new systems and procedures for compliance, requiring them to ask users for their personal information. While the IRS is technically attempting to target American users, service providers would have no way to determine nationalities before harvesting user data.

The move would be a decisive step toward bringing the world of digital assets in line with traditional financial systems in terms of regulatory oversight and transparency. It’s crucial that the average American understand the proposal’s implications, because it represents a significant pivot point in how digital assets are perceived and managed by regulators.

The industry’s response

The industry’s response to these regulatory changes has been marked by concern and proactive engagement. Major players have expressed apprehensions about the intrusion into personal privacy, including Coinbase, whose chief legal counsel Paul Grewal, noted the change would “set a dangerous precedent for surveillance of the everyday financial activities of consumers by requiring nearly every digital asset transaction — even the purchase of a cup of coffee — to be reported.”

At their core, the proposed regs go well beyond the congressional mandate to establish tax reporting rules on par with those for traditional finance, putting digital assets at a disadvantage and threatening to harm a nascent industry when it’s just getting started. 2/4

— paulgrewal.eth (@iampaulgrewal) October 18, 2023

The broader industry is similarly concerned about the possibility of regulations stifling the growth of digital assets. A primary issue is the appropriate application of conventional regulatory frameworks to decentralized systems, ensuring investor privacy protection and fostering an environment that supports innovation while maintaining market stability.

The change would have profound implications for individual investors and developers within the cryptocurrency realm. For investors, clearer regulatory guidelines could bolster market confidence, potentially leading to increased investment activity. However, excessively strict regulations risk curbing innovation and reducing the appeal of cryptocurrencies as an alternative to traditional financial systems. For developers, especially those in the DeFi sector, these regulatory shifts present both compliance challenges and opportunities to influence the development of rules that recognize the unique capabilities of blockchain technology.

Navigating the complexities of these regulatory proposals necessitates a balanced approach. The cryptocurrency industry must proactively engage with regulators to ensure the creation of fair, practical, and innovation-friendly regulations. Balancing regulatory oversight with the preservation of the ecosystem’s core values is crucial for the future of digital finance. The industry’s capacity to adapt to these regulatory changes while retaining its innovative essence is pivotal.

The requirement for regulatory adaptability and industry evolution is more apparent than ever. The cryptocurrency sector is encouraged to evolve its practices to meet emerging regulatory standards while preserving its innovative and decentralized nature. Simultaneously, regulators are challenged to comprehend the unique aspects of digital assets and decentralized systems to devise effective, sensible, and forward-thinking regulations.

Lobbying and political contributions

The cryptocurrency industry’s involvement in lobbying and political contributions has become increasingly significant. In 2022, the industry’s lobbying efforts and political contributions skyrocketed, reflecting its growing interest in shaping regulatory frameworks. This political engagement is a clear indicator of the industry’s commitment to influencing policy decisions that will affect its future. It also highlights the need for a regulatory environment that understands and accommodates the unique characteristics of digital assets and blockchain technology.

Expanding the definition of “broker” would stifle innovation for the industry, but particularly on American soil. The cryptocurrency community’s resilient response, advocating for fair and supportive regulatory measures, underscores the delicate balance between effective regulation and fostering technological progress.

As the industry actively participates in shaping these regulations, its involvement is crucial to ensuring the U.S. cryptocurrency sector continues to thrive in a competitive global landscape, balancing regulatory compliance with innovation and growth.

Tomer Warschauer Nuni is the chief marketing and business development officer at Pink Moon Studios. With more than two decades of experience in tech, gaming, and blockchain, Tomer is an adept early-stage investor and startup advisor for projects including ChainGPT and GT-Protocol. He holds degrees in governance and communication from Reichman University.

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.

Politics

‘There is a global race underway for Bitcoin’ — Anthony Pompliano

Published

2 hours ago

November 16, 2024

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<div>'There is a global race underway for Bitcoin' — Anthony Pompliano</div>

The election of a pro-crypto President in the United States and growing macroeconomic turmoil will continue to drive investors to Bitcoin.

Politics

Sir Keir Starmer vows to defend budget decisions ‘all day long’ as farmers slam ‘disrespectful’ PM

Published

3 hours ago

November 16, 2024

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Sir Keir Starmer vows to defend budget decisions 'all day long' as farmers slam 'disrespectful' PM

Sir Keir Starmer has said he will defend the decisions made in the budget “all day long” amid anger from farmers over inheritance tax changes.

Chancellor Rachel Reeves announced last month in her key speech that from April 2026, farms worth more than £1m will face an inheritance tax rate of 20%, rather than the standard 40% applied to other land and property.

The announcement has sparked anger among farmers who argue this will mean higher food prices, lower food production and having to sell off land to pay for the tax.

Sir Keir defended the budget as he gave his first speech as prime minister at the Welsh Labour conference in Llandudno, North Wales, where farmers have been holding a tractor protest outside.

Sir Keir admitted: “We’ve taken some extremely tough decisions on tax.”

He said: “I will defend facing up to the harsh light of fiscal reality. I will defend the tough decisions that were necessary to stabilise our economy.

“And I will defend protecting the payslips of working people, fixing the foundations of our economy, and investing in the future of Britain and the future of Wales. Finally, turning the page on austerity once and for all.”

He also said the budget allocation for Wales was a “record figure” – some £21bn for next year – an extra £1.7bn through the Barnett Formula, as he hailed a “path of change” with Labour governments in Wales and Westminster.

And he confirmed a £160m investment zone in Wrexham and Flintshire will be going live in 2025.

‘PM should have addressed the protesters’

Among the hundreds of farmers demonstrating was Gareth Wyn Jones, who told Sky News it was “disrespectful” that the prime minister did not mention farmers in his speech.

He said “so many people have come here to air their frustrations. He (Starmer) had an opportunity to address the crowd. Even if he was booed he should have been man enough to come out and talk to the people”.

He said farmers planned to deliver Sir Keir a letter which begins with “‘don’t bite the hand that feeds you”.

Mr Wyn Jones told Sky News the government was “destroying” an industry that was already struggling.

“They’re destroying an industry that’s already on its knees and struggling, absolutely struggling, mentally, emotionally and physically. We need government support not more hindrance so we can produce food to feed the nation.”

He said inheritance tax changes will result in farmers increasing the price of food: “The poorer people in society aren’t going to be able to afford good, healthy, nutritious British food, so we have to push this to government for them to understand that enough is enough, the farmers can’t take any more of what they’re throwing at us.”

Mr Wyn Jones disputed the government’s estimation that only 500 farming estates in the UK will be affected by the inheritance tax changes.

“Look, a lot of farmers in this country are in their 70s and 80s, they haven’t handed their farms down because that’s the way it’s always been, they’ve always known there was never going to be inheritance tax.”

On Friday, Sir Keir addressed farmers’ concerns, saying: “I know some farmers are anxious about the inheritance tax rules that we brought in two weeks ago.

“What I would say about that is, once you add the £1m for the farmland to the £1m that is exempt for your spouse, for most couples with a farm wanting to hand on to their children, it’s £3m before anybody pays a penny in inheritance tax.”

Ministers said the move will not affect small farms and is aimed at targeting wealthy landowners who buy up farmland to avoid paying inheritance tax.

But analysis this week said a typical family farm would have to put 159% of annual profits into paying the new inheritance tax every year for a decade and could have to sell 20% of their land.

The Country and Land Business Association (CLA), which represents owners of rural land, property and businesses in England and Wales, found a typical 200-acre farm owned by one person with an expected profit of £27,300 would face a £435,000 inheritance tax bill.

The plan says families can spread the inheritance tax payments over 10 years, but the CLA found this would require an average farm to allocate 159% of its profits each year for a decade.

To pay that, successors could be forced to sell 20% of their land, the analysis found.