Attorney John Deaton, a prominent advocate for XRP, has voiced strong objections to a recent cryptocurrency tax reporting regulation introduced by the Biden administration. The rule, officially named “Gross Income Reporting by Brokers Facilitating Digital Asset Sales,” is causing concern among figures in the decentralized finance (DeFi) sector.
What Are the New Tax Reporting Requirements?
The IRS has mandated that brokers handling digital asset transactions must report gross income and issue Form 1099 to their clients. Additionally, this regulation requires the collection of personal user information, including names and addresses.
How Do These Rules Affect DeFi Platforms?
Deaton argues that these requirements disproportionately target DeFi platforms. Due to the nature of decentralized systems, which utilize autonomous smart contracts, compliance with these regulations would necessitate some form of central authority, which contradicts the essence of DeFi.
- The new rules may hinder innovation within the DeFi sector.
- Challenges arise as businesses may struggle to provide required user data.
- Deaton draws parallels between current regulations and past legislative efforts limiting self-custody of Bitcoin, emphasizing risks to user privacy.
With the regulations set to take effect on January 1, 2027, the IRS aims to hold DeFi brokers to the same standards as traditional securities brokers. Deaton has called on the new Congress to reconsider and potentially repeal these rules to promote a more favorable environment for cryptocurrency innovation.