- The new rules would require anyone facilitating a crypto transaction to report it
- They would stifle innovation and inflict damage of $28 billion
- Some customers might move to offshore DEXs to protect their privacy
Sarah Kreps, head of the Tech Policy Institute at Cornell University, hosted a talk with John Wu, President of Ava Labs, Susan Joseph, Executive Director of the Cornell FinTech Initiative, and Jason Schwartz, co-head of the Digital Assets & Blockchain Practice at a law firm and tax expert. They discussed what the IRS’ new rules for crypto would mean for the US economy, job market, and industry.
“Crippling” the industry
The IRS proposed new rules in August 2023, which would cripple the industry according to the experts. For example, they would require anyone “facilitating a digital asset transaction” in any way, shape, or form to report it to tax authorities.
This means that your name, address, and social security number would be collected if you bought something using crypto, even something as small as a slice of pizza. Jason Schwarz commented:
By the IRS's own estimates, it would almost triple the paperwork that the IRS would have to process, with a cost to the economy of $75.2 billion annually.
Susan Joseph added that the IRS was only looking at potential gains and missing the big picture: stifling innovation and wreaking economic havoc to the tune of $28 billion. The only real consequences the proposed rules would have is pushing crypto-related jobs and services abroad.
Risks of moving to offshore DEXs
The proposal would inflict damage on decentralized platforms as well. Collecting customers’ personal details would cost a lot of time and money. Some of them might choose to move to offshore Decentralized Exchanges (DEXs) rather than give up anonymity, and those are associated with serious risk.
John Wu summarized:
Innovators and startups will be disproportionately burdened by compliance and operational requirements. Some of them will have to become taxation experts while developing their technology and product - and this is a huge barrier to entrepreneurialism and innovation. Others simply won't innovate in the US.
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