Blockchain development firm Consensys has requested the U.S. Internal Revenue Service (IRS) to delay implementing proposed tax regulations that require brokers and exchanges to report certain cryptocurrency sales.
In a letter to the IRS, Consensys cited concerns about the burden these regulations would place on entities that do not traditionally have reporting obligations.
The IRS published an early version of Form 1099-DA in April, following tax reporting rules proposed last August. These rules would treat crypto brokers similarly to traditional brokers handling stocks and bonds, requiring them to file 1099-DA forms for specific crypto transactions. The draft form categorizes brokers as kiosk operators, digital asset payment processors, hosted wallet providers, unhosted wallet providers, and others.
Consensys, the developer behind the MetaMask wallet, criticized the draft form for its lack of clear instructions and overly broad definition of a broker, which could result in multiple parties reporting the same transaction. “The Draft Form has not been published with instructions for brokers, presenting an insurmountable challenge when asked to create a plan to implement the Draft Form,” the letter stated. “It is unclear how to report in several boxes of the Draft Form.”
Additionally, Consensys was concerned about the proposed rules’ capacity to address data privacy issues within the crypto industry. The firm pointed out that brokers have limited time to comply with the regulations before the upcoming tax filing deadline. “Providing software developers, now proposed to be brokers, with a form that requires manual inputs to complete would single-handedly destroy U.S. companies that publish blockchain user interfaces like self-custody wallets,” the letter added.
In the newly released draft of the individual income tax return, the IRS clarified that digital assets are “any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins.”
The IRS said it plans to make public criminal tax-evasion cases involving cryptocurrency, which opens a new front in the agency’s burgeoning scrutiny of the industry.
As described further in the petition, though taxpayers are required to report any associated profits and losses on their crypto dealings, the IRS’s experience “has demonstrated significant tax compliance deficiencies relating to cryptocurrencies and other digital assets.”
