US new crypto tax rules stir backlash from crypto community

Joe Biden in 2023 P 20230216CS 0130 27 – CC BY-SA

The Internal Revenue Service’s (IRS) newly issued cryptocurrency taxation guidelines have sparked controversies in the cryptocurrency industry.

On August 25, the IRS revealed new rules regarding digital assets. The rules are aimed at enhancing reporting to tackle potential tax evasion. The crux of these new regulations hinges on the sales and trading of digital assets.

A Department of the Treasury supplementary budget explainer paper dated March 9 said that there would be an “excise tax equal to 30 percent of the costs of electricity used in digital asset mining.”

The regulation ensures that brokers play an active role in simplifying tax reporting. Broker refers to digital asset trading platforms, crypto payment processors and other online wallets storing digital assets. The regulation will require brokers to send the forms to both the IRS and digital asset holders. This makes it more challenging for traders to sidestep their tax obligations.

The regulation aims to address “loopholes” in the crypto industry. Cryptocurrencies have long existed in a gray area. Many unregulated aspects of crypto transactions lead to ambiguity in tax reporting. However, brokers are now to report specific transactions, closing the gaps that might allow crypto users to engage in tax fraud.

What crypto traders have to say

Prominent figures within the crypto community have criticized the new rules. This includes Ryan Selkis, CEO of crypto market intelligence provider Messari. Selkis argued the growth of the industry in the U.S. would halt after adopting such measures.

“There’s no future for crypto in the US if Biden is reelected. I’m sorry,” he wrote on Twitter. “Move abroad, draft Newsom and hope for the best, or vote GOP where at least we know the top three candidates are less terrible on this issue.”

Meanwhile, Christopher Perkins, the president of CoinFund, pointed out that other countries had surpassed the U.S. in terms of crypto initiatives. He maintained that crypto innovation would slow down in the country, saying it needed “proactive, nuanced policies” encouraging responsible innovation instead.

Meanwhile, skepticism lingers about the support for cryptocurrency from two major US political parties, the Democrats and Republicans. Cryptocurrency is growing in power in national politics, with wealthy crypto investors helping both parties score their key wins in 2022. Operatives of both parties have also begun leveraging cryptocurrency donations to boost their candidates and campaign efficiency.

Regardless of the successful results, many are now questioning the parties’ commitment to fostering a conducive environment for cryptocurrency activities. While the Republicans are generally more supportive of the cryptocurrency industry, opposition towards crypto is still prevalent within the party.

On the other side, quite a high number of Democrat policymakers urged the IRS and the Treasury to speed up the finalization of the cryptocurrency tax regulation, including senators Elizabeth Warren, Bernie Sanders, Richard Blumenthal and Bob Casey.

Roger Marshall, who co-sponsored the Digital Asset Anti-Money Laundering Act with other Democrat politicians, called cryptocurrency a “national threat” that should be ceased to use. In a July press release, the senator pushed for bipartisan legislation to “crack down on crypto-criminals and sophisticated criminal cyber networks who use anonymity to spy, steal, and circumvent [U.S.] ‘s laws.”