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Blockchain Advocacy Group Voices Privacy Concerns Over IRS’s Proposed Crypto Tax Form

ByDayne Lee

Jun 24, 2024

Blockchain Advocacy Group Voices Privacy Concerns Over IRS’s Proposed Crypto Tax Form

The Chamber of Digital Commerce, a prominent trade association within the blockchain sector, has recently provided comprehensive feedback on the United States Internal Revenue Service’s (IRS) proposed Form 1099-DA. This form is intended to streamline the reporting of digital asset transactions, including those involving cryptocurrencies.

In its submission, the Chamber emphasized the importance of simplifying the form for brokers handling digital assets. It also raised significant privacy concerns, urging the IRS to limit information requests to what is essential for tax reporting, thus protecting taxpayer privacy.

Simplification and Privacy Concerns

The Chamber criticized the draft form for its extensive information requirements, suggesting that only essential data be requested for basic tax reporting. They recommended that brokers retain additional information only for specific IRS examinations, thereby reducing unnecessary data collection and potential privacy risks.

  • Simplified Information Requirements: Only request basic data necessary for tax reporting.
  • Limited Sensitive Data Collection: Collect transaction IDs and digital asset addresses only if there is suspicion of criminal activity.

Detailed Feedback on Information Requests

The Chamber of Digital Commerce expressed specific concerns regarding the draft form’s request for sensitive information, such as transaction IDs and digital asset addresses. The advocacy group argued that collecting such details could infringe on taxpayer privacy and should be reserved for instances where there is a reasonable suspicion of illegal activities.

Additionally, the feedback highlighted the need for the IRS to provide clear instructions for brokers on completing the form accurately. The Chamber advised that these instructions should be made available for public review before finalizing the form, ensuring that brokers have adequate guidance.

Concerns Raised:

  • Sensitive Information: Potential privacy infringements by requesting detailed transaction data.
  • Lack of Broker Instructions: Need for clear guidelines to ensure accurate form completion.

The Chamber also proposed that the form should include options for brokers to indicate if a digital asset, such as non-fungible tokens (NFTs), is subject to a different tax rate. NFTs, often treated as collectibles, might be taxed at a higher rate. Including this option would help prevent processing errors and ensure accurate tax reporting by the IRS.

Tax Rate Recommendations:

  • Differentiated Tax Rates: Allow indications for assets like NFTs that may be taxed differently.
  • Error Prevention: Enhance accuracy in IRS processing and reporting.

Community Response and Broader Implications

The IRS released the draft form on April 18, inviting public comments. The Chamber’s detailed input follows its earlier feedback on related proposed regulations submitted in November 2023. According to the draft form, brokers will be required to prepare Form 1099-DA for every customer who sells or exchanges digital assets. This broad category of brokers includes kiosk operators, digital asset payment processors, and both hosted and unhosted wallet providers.

The crypto community has been vocal in its response to the proposed reporting requirements. The Blockchain Association, another influential group in the sector, criticized the rule, arguing that it reveals “fundamental misunderstandings about the nature of digital assets and decentralized technology.”

As the IRS reviews the feedback, the Chamber’s recommendations could play a critical role in shaping the final version of Form 1099-DA. Simplifying the form and addressing privacy concerns could help ensure that the reporting requirements are practical and protect taxpayer rights without compromising regulatory oversight.

The evolving landscape of digital asset regulation continues to pose challenges and opportunities for both regulators and the crypto community. The Chamber of Digital Commerce’s proactive stance reflects a broader industry effort to engage constructively with regulatory bodies, advocating for balanced approaches that facilitate compliance while safeguarding privacy and innovation.

The Chamber of Digital Commerce’s response to the IRS’s proposed Form 1099-DA underscores the critical balance between effective regulation and privacy protection in the digital asset space. As the IRS moves forward with finalizing the form, the feedback from industry leaders like the Chamber will be instrumental in shaping a framework that supports the growth and integrity of the cryptocurrency market.

Featured image credit: kjpargeter via Freepik

Dayne Lee

With a foundation in financial day trading, I transitioned to my current role as an editor, where I prioritize accuracy and reader engagement in our content. I excel in collaborating with writers to ensure top-quality news coverage. This shift from finance to journalism has been both challenging and rewarding, driving my commitment to editorial excellence.

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