November 30, 2023

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The IRS proposes to collect unprecedented data on cryptocurrency users

The IRS proposes to collect unprecedented data on cryptocurrency users

For two years, the cryptocurrency world has been waiting to see how it would play out Internal Revenue Service (IRS) Implementation of the Infrastructure Investment and Employment Law. Simply put, this law creates new reporting requirements that threaten to effectively ban cryptocurrency mining and expose millions of Americans to serious new crimes. The good news is that the IRS’s nearly 300-page proposal isn’t as bad as it could have been under the law. However, this is far from saying that it is a good policy.

As citizens, businesses and consultants finish drafting their comment letters before the October 30 response deadline, it is important to take a step back and understand why companies are not required to report their customers’ comments to the government by default.

Back in 2021, the Infrastructure Investment and Jobs Act was about building roads, bridges and the like, not about cryptocurrencies or financial reporting. It wasn’t until funds were urgently needed to offset expenses that members of Congress included two provisions for increased financial oversight of cryptocurrency users. Their argument was that increased surveillance would increase tax revenue, and they accused cryptocurrency users of tax evasion.

At that time, the Joint Committee on Taxation considered the provisions You will be born About $28 billion in tax revenue over 10 years. Without a way to replace the funding, attempts to eliminate the controversial reporting requirements were ultimately rejected.

The $28 billion figure was questionable at the time. Less than a year later, the Biden administration released its report budget, which has a completely 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 obtained over the next 10 years. Now, even that number may be an exaggeration, as Treasury officials acknowledged that the estimates were based on a very different market.

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IRS summary of its proposal to impose new data collection requirements on cryptocurrency service providers. Source: US Federal Register

With costs removed from the equation, what remains appears to be nothing more than just another brick in the wall of American financial oversight.

Again, the IRS proposal doesn’t seem to be as bad as it could have been, as the proposal excludes miners and some software developers for now. However, the proposal chooses a troubling path to determine who should be required to report on their clients.

It seems to be partly hypothetical based on About “whether the person is in a position to know information about the customer’s identity, rather than whether the person would ordinarily know that information.” This distinction is made because some platforms “have a policy of not asking for customer information or only asking for limited information,” the proposal states. [pero] “For this reason, the proposal states that the IRS anticipates that some decentralized exchanges and self-hosted wallets may have to report the private information of their customers.

In other words, while businesses may not have a reason to collect personal and sensitive information from customers, the starting point the IRS works with is whether they have the ability to do so. This may be somewhat limited since the focus is on companies providing the service, but “capacity to collect information” seems to be little more than “virtual collection.”

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Although this approach is worrying, it should not be surprising. The U.S. government has slowly established broader financial reporting requirements through the Bank Secrecy Act, the Patriot Act, and numerous other laws and regulations. The provisions in the Infrastructure Investment and Jobs Act and the resulting IRS proposal are simply the latest version of this expanded framework.

However, rather than continuing to expand the scope and depth of financial surveillance, this should be a time to question the entire premise. In a country where Americans are supposed to be protected by the Fourth Amendment, companies should not be forced to fail to report their customers to the government. Activities like using cryptocurrency for payments, receiving more than $600 in PayPal after a garage sale, or receiving a check from a job should not put you in a government database.

Moving away from this surveillance state would require fundamental changes to American law, but that does not mean it is a radical idea. When the Cato Institute conducted a survey, 79 percent of Americans said it was unreasonable for banks to share financial information with the government, and 83 percent said the government should need a court order to obtain financial information.

These are the principles that should guide the discussion. Therefore, as the October 30 response deadline approaches, commenters should consider what the proposal does and does not propose.

Moreover, although the current focus is largely on the IRS, we should not forget that the responsibility for addressing the current situation and overall state of fiscal oversight rests with the halls of Congress. Ultimately, the IRS is doing what Congress told it to do. Therefore, it is Congress that must intervene to reform the system as a whole.

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Nicholas Anthony He is a policy analyst at the Cato Institute’s Center for Monetary and Fiscal Alternatives. He is an author The Infrastructure Investment and Jobs Act’s attack on cryptocurrencies: Questioning the justification of cryptocurrency provisions And The Right to Financial Privacy: Creating a better framework for financial privacy in the digital age.

This article is for general informational purposes and is not intended and should not be taken as legal or investment advice. The views, thoughts and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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