IRS’s Unconstitutional Broker Rule: A Crypto Catastrophe

We're Not Seeking Special Treatment' Coin Center Discusses Proposed IRS Broker Rules

Coin Center on IRS Broker Rules We’re Not Asking for Special Treatment

Introduction

Welcome, fellow digital asset investors, to a wild ride through the IRS’s proposed broker rule, a rule that has the cryptocurrency industry shaking in its virtual boots. This rule, which has been deemed unconstitutional and an existential threat for the industry, aims to expand the definition of a broker to include virtually anything that touches code in the crypto world. In other words, it’s like trying to fit an elephant-sized blockchain into a tiny crypto-shaped box. The IRS has been holding hearings on this contentious proposal, and oh boy, has it received a lot of comments! Over 120,000 to be exact. One of those comments, filed by Coin Center, caught our attention, and we sat down with their director of research, Peter Van Valkenburgh, to get the inside scoop on this crypto crisis.

Unprecedented Times

“This is unprecedented,” exclaimed Van Valkenburgh. And he’s right. The IRS is venturing into uncharted territory, attempting to extend reporting obligations to software developers, who, mind you, have never had customers in the traditional sense. It’s like trying to teach a dolphin to perform brain surgery—an impossibly ill-fitting situation. What the IRS fails to understand is that software developers, unlike traditional brokers, don’t have customers to report on. They’re just creating tools for the crypto community—tools that shouldn’t come with a side dish of customer surveillance.

Strange Bedfellows

When it comes to reporting obligations, Coin Center believes that it’s a matter of civil liberties. They argue that this rule violates people’s privacy and forces software developers into the uncomfortable position of collecting and reporting user information. It’s like the government wanting to know what books we’re reading and then forcing authors to have book signing events to spy on our reading habits. It’s like an invasion of privacy wrapped in a constitutionally dubious package. The bottom line is, it’s just not right!

A Duck or a Crypto Broker?

So what about the term “broker”? Is there anything similar in US tax law or global policy? Well, the answer might surprise you. Van Valkenburgh brilliantly puts it, “If it walks like a duck and it quacks like a duck, it’s a duck.” Makes sense, right? Traditional brokers in the crypto space, such as Coinbase, resemble ducks in the sense that they have contractual relationships with customers and handle customer assets. So, obligating them to report is just common sense. But what about those software developers who don’t fit the “duck” bill? They shouldn’t be forced into a role they were never meant to play.

• Is the IRS Crushing DeFi? A Taxing Proposal
• Analyzing the stablecoin ‘rising star’ USDV Creating a native on-chain stablecoin, leveraging RWA to open a new narrative.
• Higher and hotter or facing a cold crash? Analyzing the logic behind the explosive surge of BRC-20 tokens and projecting future developments.

The Battle: Won and Lost

Coin Center had already fought and won a battle against this rule. They thought they had finally dashed it to pieces, but, surprise, the IRS decided to bring it back from the grave. It’s like fighting a zombie apocalypse, except the zombies are tax rules and the apocalypse is your privacy. Now it’s up to Coin Center and other crypto advocates to gear up for round two, armed with compelling arguments and an unwavering commitment to protecting civil liberties.

The DeFi Dilemma

Ah, decentralized finance (DeFi)—the pinnacle of financial innovation. But guess what? The IRS wants even DeFi protocols to cough up information. Crazy, right? It’s like trying to force a cucumber to reveal its secrets! Here’s the thing: DeFi protocols operate differently from traditional businesses. They’re not here to collect user information; they’re here to provide tools that respect user privacy. It’s like asking Picasso to explain the mysteries of abstract art—it’s just not their thing. The IRS needs to understand that DeFi is all about trust, and forcing software developers to become the very entities users are trying to escape from is just plain wrong.

Privacy Predicament

The Fourth Amendment guarantees our right to privacy, but the IRS seems to have missed that memo. Instead, they’re creating a search and seizure regime that is manifestly unconstitutional. It’s like trying to force a lion to become a vegetarian—completely against its nature. Software developers, especially those creating DeFi solutions, have no business collecting personal information on their users. It’s like forcing a burger to eat salad—it just doesn’t make sense.

Data Dangers

Now let’s talk about the massive amount of data that will result from this rule. Even the IRS has admitted that it’s going to drown in reports—reports that it’s not even prepared to handle. A database containing home addresses of crypto holders? That’s like a bullseye for hackers. We’re talking about sensitive information floating around like confetti at a party. It’s like leaving the door to a vault wide open and hoping for the best. Spoiler alert: it won’t end well.

Improve Compliance or Improve Clarity?

The IRS claims that this rule will improve tax compliance, but will it really? If you ask Coin Center, the answer is a resounding “no.” Instead of burdening developers and other non-traditional brokers, the IRS should focus on making it easier for obvious crypto brokers to report information. It’s like choosing between digging a hole with a shovel or a teaspoon—obvious choices, people!

Finding a Silver Lining

Amidst the chaos, there might just be a glimmer of hope. Van Valkenburgh points out that having bespoke rules for crypto brokers could be a positive development—if done right. It would bring much-needed clarity to the industry and align it with traditional financial practices. Now that’s a win-win situation we can all appreciate!

Conclusion

Phew! That was quite a rollercoaster ride through the IRS’s broker rule madness. We hope you’ve enjoyed this thrilling and educational journey. Remember, folks, it’s vital to fight for privacy, protect civil liberties, and ensure that the crypto world retains its innovative spirit. So, let’s raise our virtual glasses and toast to a future where crypto thrives and freedom reigns!

Psst, dear readers! What are your thoughts on the IRS’s broker rule? Join the conversation and let us know in the comments below. And don’t forget to share this rollercoaster ride with your fellow investors!

We will continue to update Blocking; if you have any questions or suggestions, please contact us!