Crypto Under Siege: IRS Sparks Controversy with Push to Regulate Decentralized Exchanges


The US tax service IRS, in its latest power grab, is setting its sights on decentralized exchanges like Uniswap, aiming to make them responsible for the onerous task of tax collection. It’s a move that has sent shockwaves through the crypto world, with industry insiders raising serious concerns and vowing to resist this overreach.

IRS’s Ambitious Move: Bringing Crypto Brokers into the Taxation Fold

In the traditional financial world, when you save or invest, the income tax process is relatively straightforward. Banks, stock exchanges, and other financial institutions are legally required to provide precise information about applicable taxes, ensuring that customers remain in compliance with the tax code. It’s a convenient system that simplifies the tax-paying process for the average citizen.

Now, the IRS wants to impose this same system on the crypto market, ostensibly to narrow the notorious “tax gap,” estimated at 15-18 percent of total tax liability in the United States. This move comes on the heels of a warning from the International Monetary Fund (IMF) that cryptocurrencies could lead to “significant tax problems,” with potential global tax revenues of $100 billion being left on the table in 2021 alone.

The Thorny Issue of Defining “Brokers” in the Crypto Space

But the devil is in the details, and the crypto industry is up in arms over the vague and overreaching definitions put forth in the draft law. The critical question is: Who exactly qualifies as a “broker” in the crypto space?

According to the IRS draft, a broker includes “anyone who regularly offers any service that effects the transfer of digital assets on behalf of others.” This definition is so broad that it could encompass virtually anyone involved in the crypto ecosystem. In essence, it means that even decentralized exchanges and non-custodial wallets could be considered brokers, forcing them to collect customer information and report sales data to the IRS.

This overbroad definition threatens the very essence of the crypto industry, which is built on principles of decentralization and user autonomy. It also clashes with the open nature of cryptocurrencies, where countless actors participate in every transaction, making it nearly impossible to differentiate who should be classified as a broker.

A Looming Clash: Crypto Industry vs. Government Overreach

As the IRS seeks to expand its reach into the crypto space, a confrontation between the industry and government looms on the horizon. This section highlights the industry’s determination to protect its principles and the impending battle between innovation and regulatory control.

In the end, it’s clear that the crypto industry is gearing up for a showdown with the government, as it fights to protect its innovative and decentralized foundations from the encroachment of excessive regulation.


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