IRS, Brace Yourself for This Warning

IRS, Beware This Warning Should Not Be Ignored

The IRS’s Proposed Regulations: A Comedy of Errors

Presented by TaxBit, this op-ed is part of CoinDesk’s Tax Week. Bill Hughes, senior counsel and director of global regulatory matters at Consensys, takes a hilarious and insightful look at the potential impact of the IRS’s proposed regulations on the blockchain software industry in the U.S. Brace yourself for a wild ride through the world of digital asset reporting!

So, here’s the deal, folks. The IRS might be overplaying their hand. And by “overplaying,” I mean they’re about to perform a comedy routine that would make even the best slapstick actors blush. Their proposed regulations could potentially cripple the blockchain software industry in the U.S. And let me tell you, that’s no laughing matter.

Now, I know what you’re thinking. “But Bill, shouldn’t digital asset brokers report their transactions just like their traditional finance counterparts?” Well, my friend, you’re absolutely right. It does make sense for these crypto intermediaries to keep both their customers and the IRS informed about tax obligations. But here’s where things start to get a little dicey.

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The IRS’s proposed regulations go far beyond what any sane person would consider reasonable. I mean, we’re talking about regulations that would make a high-wire acrobat sweat bullets. And trust me, no one wants to see a sweaty acrobat. These regulations would put undue burdens on many entities in the crypto community, potentially crushing their hopes and dreams like a giant foot stomping on a tiny ant (metaphorically speaking, of course).

Imagine, if you will, a world where software developers are forced to overhaul their products and business practices just to comply with these new rules. It’s like asking a squirrel to perform open-heart surgery. Sure, it sounds entertaining, but it’s not exactly a recipe for success.

We’re not talking about a few software developers here, folks. We’re talking about everyone from big players like Consensys to small garage-band projects with a shoestring budget. They would all be caught in the crossfire of these regulations, desperately trying to navigate uncharted waters with no compass and a leaky boat.

But fear not, my friends. All hope is not lost. We must urge the IRS to stick to Congress’s instructions like a fly sticks to a sticky trap (I apologize for the graphic imagery). Congress wanted digital-asset brokers to be treated just like their traditional finance counterparts, not like mythical creatures from a fantasy novel.

You see, the IRS’s proposed rule would expand the definition of “broker” to include anyone remotely related to the transaction process. It’s like saying anyone who’s ever stood near a poker table should be considered a professional gambler. I don’t know about you, but that’s not a game I want to play.

And let’s not forget about the operational impacts these regulations would have. Non-custodial entities would have to become custodians just to satisfy tax obligations. It’s like forcing a vegetarian to eat a steak dinner. It goes against everything they stand for.

Oh, and did I mention the potential for duplicative reporting? That’s right, folks. We could have multiple withholdings for a single transaction, or taxpayers receiving more payee statements than they can count. It’s like getting a dozen birthday cakes on the same day. Sure, it sounds great at first, but it quickly becomes overwhelming and downright confusing.

But wait, there’s more. The IRS should also exclude certain digital assets from these reporting requirements. Non-fungible tokens (NFTs), for example, are more like souvenirs than investments. You don’t report your fridge magnets to the IRS, do you? I certainly hope not.

And let’s not forget about stablecoins. These coins are like the calm waters in a stormy sea, holding their value steady against the raging tides of volatility. They should be exempt from these reporting requirements, except in cases where explicit trading activity is involved. Otherwise, it’s like trying to measure the length of a rainbow. It’s just not necessary.

Now, before I finish up, I want to leave you with a glimmer of hope. Despite the initial overreach of the IRS’s proposed regulations, I have faith that they will revise them with the same thoughtfulness and attention to detail they put into the first draft (which, let’s be honest, took longer to write than a Russian novel).

We need a reporting regime that works for everyone, from software developers to taxpayers. It’s crucial for the further development of blockchain technology, an exciting new frontier that the U.S. should dominate like a fierce rodeo cowboy. So let’s keep giving the IRS our input and support, and maybe, just maybe, we’ll end up with a reporting regime that will make us all chuckle with delight.

Now, it’s your turn, dear readers. What are your thoughts on the IRS’s proposed regulations? Do you think they’re a comedy of errors or a stroke of genius? Let me know in the comments below. And remember, investing in digital assets may be risky, but reading articles about them should always be entertaining!

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