-
Officials
from
the
Internal
Revenue
Service
and
the
U.S.
Treasury
were
interested
in
how
the
industry
might
self-identify
assets
that
have
nothing
to
do
with
finance
and
whether
stablecoins
should
be
left
out
of
the
proposal. -
After
an
incredible
124,000
comments
have
come
in
on
the
IRS
proposal,
the
window
closes
Monday,
beginning
the
final
months
of
the
process
that
could
end
in
the
crypto
industry’s
first
major
crypto
regulations
in
the
U.S.
While
crypto
representatives
and
lawyers
cautioned
the
U.S.
Internal
Revenue
Service
(IRS)
that
its
crypto
tax
proposal
is
a
dangerous
and
improper
overreach,
questions
posed
by
a
panel
of
IRS
and
Department
of
the
Treasury
officials
at
a
Monday
hearing
may
reveal
some
flexibility
in
the
rule
as
it’s
still
being
written.
The
panel
of
federal
officials,
who
weren’t
identified
as
they
asked
questions
during
the
audio
hearing,
showed
interest
in
potential
burdens
on
decentralized
platforms
under
their
proposed
rule,
whether
stablecoin
transactions
should
be
reported
and
how
non-financial
assets
could
be
identified
as
such.
The
crypto
tax
rule
was
proposed
in
August,
and
a
public
comment
period
ended
Monday,
but
a
final
version
is
probably
months
away
and
would
likely
respond
to
at
least
some
of
the
industry’s
condemnation.
The
government
officials
asked
more
than
once
how
digital
assets
that
may
not
be
financial
in
nature,
such
as
most
non-fungible
tokens
(NFTs),
could
be
separated
out,
and
whether
brokers
could
be
in
a
position
to
identify
them.
Marisa
Coppel,
a
lawyer
with
the
Blockchain
Association,
said
she
thought
that
would
be
possible,
especially
if
the
IRS
narrows
what
it
considers
a
“broker”
to
only
include
the
centralized
exchanges.
Broker
definition
The
officials
asked
Coppel
to
clarify
that
central
point
of
industry
criticism,
which
came
up
repeatedly
at
the
hearing:
the
proposal’s
wide
definition
of
brokers
required
to
report
data,
which
currently
includes
some
decentralized
finance
(DeFi)
projects
and
wallet
software.
They
wanted
to
know
what
the
decentralized
platforms’
main
burdens
would
be.
“There’s
obviously
a
ton
of
information
that
needs
to
be
collected
in
order
to
do
this
reporting,”
she
explained.
“And
if
there’s
no
specific
person
that
either
owns
or
controls
the
software
that
users
are
using
in
DeFi,
there’s
no
way
to
collect
that
information.”
William
Entriken,
who
was
involved
with
the
ERC-721
standard
that
paved
the
way
for
NFTs
on
Ethereum,
also
argued
that
there
are
some
kinds
of
transactions
for
which
the
law
doesn’t
or
shouldn’t
let
the
IRS
gather
information
about
–
mentioning
spending
on
guns
or
abortions.
“There
are
a
lot
of
special
classes
of
purchases,”
said
Entriken,
and
this
regulation’s
demand
for
reporting
individual
transactions
would
contrast
with
those,
legally.
“That’s
going
to
be
a
problem.”
Stablecoins
The
government
panel
asked
Entriken
if
they
were
to
change
their
proposal’s
insistence
on
reporting
transactions
of
assets
that
are
never
meant
to
show
a
loss
or
gain
–
such
as
stablecoins
–
whether
that
would
also
address
the
problem
of
specialized
classes
of
purchases
the
government
shouldn’t
be
tracking.
Mostly,
he
suggested.
The
stablecoin
reporting
requirement
in
the
proposal
was
a
frequent
point
of
contention,
with
people
from
the
crypto
sector
saying
it
doesn’t
make
sense
to
include
those
transactions
as
taxable
exchanges
of
assets.
Stablecoins
are
tokens
whose
value
is
tied
to
a
steady
asset,
such
as
the
dollar,
and
are
used
as
the
common
currency
in
the
digital
assets
industry.
“Do
you
propose
that
there
should
not
be
reporting
with
respect
to
stablecoins?”
one
of
the
panelists
asked
a
representative
of
Coinbase
(COIN).
“Do
you
have
a
suggestion
for
how
the
term
stablecoin
would
be
defined?”
Lawrence
Zlatkin,
Coinbase’s
vice
president
for
tax,
said
in
the
hearing
that
“tax
reporting
when
there
is
no
gain
or
loss,
including
stablecoins,
will
result
in
expansive
but
low
value
reporting.”
The
IRS
has
itself
noted
that
its
proposal
could
bring
on
several
billion
additional
tax
filings
each
year,
potentially
flooding
the
already
overburdened
agency.
“The
IRS
should
not
police
every
digital
asset
transaction,”
Zlatkin
argued.
Privacy
Getting
into
another
of
the
core
concerns
–
crypto
users’
privacy
–
the
IRS
officials
asked
a
lawyer
who
specializes
in
U.S.
financial
know-your-customer
laws
about
the
inner
workings
of
digital
identification
systems
that
could
maintain
people’s
anonymity.
They
discussed
the
technology
of
privacy
tokens
and
how
they’re
already
being
adopted
in
the
industry.
And
the
government
team
asked
a
representative
of
a
transaction
aggregator
–
businesses
that
let
clients
connect
their
wallets
and
exchange
accounts
to
a
central
hub
for
figuring
out
their
tax
burdens
–
how
such
services
figure
out
the
cost
basis
for
assets
and
how
those
businesses
can
improve
their
consistency
after
reports
that
different
firms
have
been
known
to
come
up
with
different
data
on
a
customer’s
tax
liabilities.
Shehan
Chandrasekera,
the
head
of
tax
strategy
at
CoinTracker,
suggested
the
IRS
“could
consider
introducing
standards”
for
the
aggregation
industry.
If
the
IRS
finishes
this
rule
before
the
Securities
and
Exchange
Commission
completes
a
couple
of
its
own
crypto-targeted
efforts,
it
would
mark
the
first
significant
crypto
regulation
in
the
U.S.
Most
of
the
13
people
invited
to
speak
at
Monday’s
hearing
were
critical
of
the
proposal
(as
were
the
vast
majority
of
more
than
124,000
submitted
comments),
with
some
of
them
suggesting
it
could
have
dire
consequences
that
snuff
out
crypto
innovation
in
the
U.S.
One
of
them
was
just
confused
as
to
how
a
regular
person
navigates
what’s
going
on.
Tavarus
Blackmon,
an
NFT
artist,
lamented
that
it’s
difficult
for
a
small
business
like
his
to
“successfully
reconcile
our
tax
liability.”
As
for
the
IRS
proposal,
he
posed
a
question
before
the
10-minute
speaker
timer
cut
him
off:
“If
a
broker
does
not
know
they
are
a
broker,
are
they
still
a
broker?”