The Blockchain Association, a prominent crypto lobbying group, has issued a stern warning to the U.S. Treasury and the Internal Revenue Service (IRS) regarding the potential impact of a proposed tax rule change. The association’s concerns, detailed in a 33-page comment, focus on a proposed redefinition of the term “broker” in federal tax regulations. This redefinition, if enacted, could have far-reaching consequences for the decentralized finance (DeFi) industry in the United States.
The IRS’s proposed rule change, announced in late August, aims to expand the definition of “broker” to include not only centralized cryptocurrency exchanges but also any DeFi project that facilitates the transfer of digital assets on behalf of others. The Blockchain Association argues that this expanded definition would subject both centralized exchanges and DeFi projects in the U.S. to the same stringent reporting requirements as traditional stock and bond brokers. The association believes that this is an unrealistic and unworkable standard for DeFi projects.
According to Marisa Tashman Coppel, senior counsel at the Blockchain Association, the proposed rule would either force DeFi projects out of the U.S. or lead to their demise. “It will drive U.S.-based decentralized projects abroad or out of existence, full stop,” Coppel stated on Twitter.
The Blockchain Association’s key argument is that DeFi’s fundamental aim is to establish trustless financial systems using smart contracts and automation. These systems are designed to prevent creators from accessing or controlling users’ financial data and assets. The association emphasizes that any effort to link wallet addresses to personal identities would pose severe privacy risks, likening it to having one’s entire credit card transaction history published online.
The public comment period for the IRS rule lasted 74 days, attracting over 124,000 comments. Following a public hearing, where IRS regulators reportedly asked insightful questions about decentralized technology, NFTs, and stablecoins, Coppel expressed cautious optimism about the outcome. However, the Blockchain Association’s letter highlights the serious concerns that the DeFi sector faces if the IRS proceeds with the rule change, underscoring the delicate balance between regulation and innovation in the rapidly evolving crypto industry.
