The United States Internal Revenue Service’s (IRS) new ruling, which holds decentralized exchanges to the same reporting requirements as traditional brokers, has sparked doubt among crypto executives and legal professionals. They believe that this ruling will not withstand long-term scrutiny.
No Shortage of Ways to Challenge This Ruling
Katherine Minarik, chief legal officer at Uniswap, expressed her skepticism about the IRS’s new ruling. In a December 27 Xpost, she stated:
No shortage of ways to challenge this, and it absolutely should be challenged.
The Industry is Searching for a Limiting Principle
Minarik emphasized that the industry, along with other tech sectors, will continue searching for a limiting principle. She further elaborated on her concerns:
So once again, the industry — and all kinds of tech beyond the industry — is going to be in search of a limiting principle.
Classifying DeFi Tech as Brokers
Minarik pointed out that the IRS’s classification of DeFi tech as brokers seems inconsistent. She explained:
It sure does seem like the IRS says they’re regulating ‘any service effectuating transactions’ as brokers… then goes on to classify DeFi tech as brokers… because it is involved in just a part of a transaction… as the IRS’s own descriptions explain.
Hoping for Rejection Under Congressional Review Act
Uniswap CEO Hayden Adams expressed his hope that the ruling will be rejected under the Congressional Review Act. If not, he is optimistic that it won’t withstand legal challenges:
On Dec. 27, the IRS issued final regulations requiring brokers to report digital asset transactions, expanding existing reporting requirements to include front-end platforms, such as decentralized exchanges.
Implementation of Reporting Systems Will Be Costly
Crypto tax platform Koinly CEO Robin Singh shared his concerns about the cost of implementing necessary reporting systems:
For businesses operating in the DeFi space, compliance with these regulations will require both operational and technical innovation.
Singh emphasized that decentralized platforms lack centralized structures needed for traditional reporting, creating a significant hurdle for many companies:
Decentralized platforms, by their nature, lack the centralized structures needed for traditional reporting, which creates a significant hurdle for many companies.
The Ruling is ‘All Cost, No Benefit’
Consensys lawyer Bill Hughes stated that the ruling will have no revenue benefits and only incur costs. He emphasized:
The outgoing administration is not leaving quietly. The fight continues.
Hughes pointed out that the ruling requires front-end platforms to track and report on both US and global users, applying to the sale of all digital assets, including non-fungible tokens (NFTs) and stablecoins:
This rule has been ready to go for a while now. They dump it on the last Friday of 2024 in the middle of a holiday stretch on purpose, obviously.
The Ruling May Face Congressional Review
Similar to Uniswap’s Adams, Hughes believes that the rule will likely come under Congressional review, where it can be disapproved of:
This rule has been ready to go for a while now. They dump it on the last Friday of 2024 in the middle of a holiday stretch on purpose, obviously.
The Battle Continues
As the crypto industry continues to navigate these complex regulations, one thing is clear: there will be no shortage of challenges and debates surrounding this ruling. The outcome remains uncertain, but what’s certain is that the fight for clarity and consistency in regulatory frameworks will continue.
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