The Blockchain Association, a cryptocurrency advocacy group in the United States, sent a letter opposing the IRS’s proposed tax rules. The crypto advocacy group urged the IRS to reconsider how it defines the term’ Broker.’
A Dire Consequences For US DeFi Space
The United States Treasury and the Internal Revenue Service (IRS) have proposed a redefinition of a single word in federal tax rules. However, The Blockchain Association warned that if this change is approved, it could have severe consequences for the country’s future of decentralized finance (DeFi).
According to the Blockchain Association, the proposed change involves a change to the IRS’s definition of the term “broker.” Additionally, the crypto lobbying group has stated that if the IRS implements this change, it will result in the extinction or forced migration of numerous American-based DeFi projects.
The Blockchain Association outlined a comprehensive argument against the proposed change in a carefully crafted 33-page commentary submitted to the IRS on November 14.
What the Proposed IRS Rule Says about “Broker”
The tax agency aims to broaden the definition of “broker” to encompass not only centralized crypto exchanges but also any crypto project involving digital asset transactions. This redefinition would affect decentralized finance protocols, subjecting them to the exact stringent reporting requirements of traditional finance entities such as bond and stock brokers.
However, supporters of the move believe that the goal is to streamline oversight and improve accountability in the burgeoning crypto sphere. The Blockchain Association, a vocal advocate for crypto interests, has firmly rejected this move. Marisa Tashman Coppel, the association’s senior counsel, expressed concerns about the feasibility of applying such stringent regulations to decentralized projects.
Coppel emphasized the potential ramifications, stating that this regulatory shift would inevitably force several US-based decentralized projects to relocate to more policy-friendly environments.
Lobby Group Defends DeFi Privacy
Meanwhile, the Lobby group has stepped up its opposition to the IRS regulations, claiming that the essence of DeFi is establishing trustless financial systems. The association emphasized that the core principle of DeFi is to foster financial autonomy through smart contracts and automated processes to prevent project creators from wielding control or accessing users’ financial data.
The association strongly opposed the possibility of linking wallet addresses to personal identities. They argue that such an action would pose a significant and long-term privacy risk to users.
They compared this linkage to publishing a lifetime’s worth of credit card transactions online, effectively exposing such users’ entire transaction history to the public. The proposed IRS rule remains open for a 74-day public comment period and has garnered 124,000 comments.
As the deadline for public comment on the regulation approaches, observers await the response from the IRS and whether it will change its stance regarding the proposal.