New US IRS rules should ‘kill’ the DeFi sector, says expert

The US Internal Revenue Service (IRS) last week published a guide on how cryptocurrency investors should report their transactions. The text is comprehensive and is already causing controversy.

According to Patrick White, CEO of Bitwave, the new IRS rules will destroy the decentralized finance (DeFi) industry. In his op-ed published in The Defiant, White notes this “the term ‘effector’ has been expanded to include any entity that directly or indirectly facilitates the transfer of digital assets.”

Therefore, it can even affect validators and cryptocurrency wallets. Further on, it is highlighted that more services will not only need to require KYC from their customers, but will also need to comply with changing the identification of their services.

“Under the new proposals, individuals and legal entities who are ‘in a position to know’ or who could have changed their activities to identify customers will become brokers.”

Precision in the declaration is now impossible, says the executive

Patrick White’s complaints about the new IRS rules don’t stop there. Following his text, the director notes that it will be impossible for the statements to be accurate.

By way of explanation, Patrick points out three major problems. The first is the lack of standardization of data coming from different brokers “nightmare” or else just “fantasy” for detailed explanations.

Still based on data offered by brokers, the director notes that some count deposits and do not show transfer fees. That means: this is possible “misrepresenting an individual’s actual financial activity, leading to potentially excessive taxes and a data mess.”

Finally, White points out that profit gains can also be another reason for errors during filing, which again can lead to incorrect results and possible additional taxes.

Sample US income tax return provided by Robinhood brokerage.  Source: Reproduction.Sample US income tax return provided by Robinhood brokerage.  Source: Reproduction.
Sample US income tax return provided by Robinhood brokerage. Source: Reproduction.

Finally, the explanations become even more complex when it comes to decentralized brokers because none of them will present you with forms like the example above. Therefore, other experts recommend the use of specialized software in this area, which can be an additional cost to the American taxpayer.

Europeans also complain about new regulations

In Europe, a new regulatory text also worries investors. Although it is not about taxes, but about monitoring money laundering, those affected may be the same.

Users’ top concerns are self-custodial wallets, anonymity-oriented coins, and other privacy-enhancing services. According to experts, the text changes MiCA (Markets in Crypto-Assets), an already extensive set of rules, approved in 2023.

Ultimately, governments and investors are expected to keep talking to find reasonable terms. Otherwise, new proposals could harm the cryptocurrency sector.

Source: Live Coins