The IRS Digital Asset Transaction Reporting Proposal and Its Threat to Privacy
Protecting Our Constitutional Rights
Introduction
A recent IRS proposal, outlined in REG-122793-19, has raised significant concerns regarding its potential impact on individual liberty, privacy, and the rights guaranteed to us by the United States Constitution. In this post, we will delve into the proposed IRS rulemaking, its implications, and why it is viewed as a violation of our constitutional rights. We will also examine other reasons for opposing these regulations and conclude with a call to action for concerned citizens.
The IRS Proposal
The IRS proposal (required to be implemented under the 1,039-page Infrastructure Investment and Jobs Act from 2021 as a source of funds for the proposed spending) focuses on information reporting, determining the amount realized and basis, and backup withholding for certain digital asset sales and exchanges. It mandates brokers, including digital asset trading platforms, payment processors, and hosted wallets, to file information returns and furnish payee statements on dispositions of digital assets. Additionally, real estate reporting persons, treated as brokers for reportable real estate transactions, are required to include the fair market value of digital asset consideration received by real estate sellers in their reporting. The proposal also encompasses real estate purchasers using digital assets for transactions.
There has been a lot of hype about the amount of crypto tax revenue the US government is missing out on, as noted in this article which pegs the amount at $50 Billion:
In a new analysis released by Barclays last week, managing director Joseph Abate estimated that the tax gap from crypto trades — the difference between how much tax revenue the IRS collects and how much it is owed — may be as much as $50 billion per year.
Barclays made its calculation by extrapolating data referenced by the IRS in 2017 to estimate that the current crypto tax gap represents a full 10% of the overall national tax gap.
I believe the so-called “expert” Barclays analysis is flawed, based on extrapolating very old data and it probably doesn’t adequately address bull and bear market results, which can swing substantially compared to other asset classes. Also, you can’t assume that the new tax rules will be 100% effective in closing the gap, so if you’re lucky maybe 25% - 50% of that can be captured. The contribution of crypto to the “tax gap” is a typical made-up source of “funding” for an extremely wasteful, inflationary $1.2 Trillion government spending bill. I also believe there’s actually a lot of honest, law abiding taxpayers who invest in Bitcoin and other cryptocurrencies in the US, especially since this has been such an area of focus the past several years. When you think about the relatively small amount of revenue this measure will ultimately raise in the big scheme of things, you just have to ask whether it’s worth further eroding our freedom. For more on Bitcoin taxation see my recent post here:
A Violation of Constitutional Rights
Privacy Invasions: One of the primary concerns is the intrusion into individual privacy. These regulations would compel the collection and reporting of highly sensitive personal financial information by a wide range of entities. Such mandatory disclosure infringes upon the Fourth Amendment rights of individuals, which protect against unreasonable searches and seizures. In a digital age where privacy is increasingly threatened, these rules only exacerbate the issue.
Overreach and Lack of Clarity: The proposed regulations expand the definition of brokers, potentially encompassing entities that do not traditionally fall under this category. The lack of clear criteria for this expansion raises concerns about regulatory overreach, classification ambiguity, and the potential burden placed on non-traditional brokers.
Chilling Effect on Innovation: These regulations could stifle innovation in the digital asset space. Start-ups and entrepreneurs may be discouraged from entering the industry due to the added compliance burden and reporting requirements, thus impeding economic progress and technological advancement.
A Call to Action
It is crucial for concerned citizens to voice their opposition to these regulations and protect their constitutional rights. Here's how you can take action:
Craft an Anonymous Response: To voice your concerns without fear of repercussions, you can craft an anonymous response to the IRS proposal. Ensure that your message highlights the potential threats to privacy, the lack of clarity, and the chilling effect on innovation.
Submit Your Response: To participate in the public comment period, visit the IRS website or the Federal Register, where you can find instructions on how to submit your response. The deadline for comments has been extended to November 13, when a public hearing is scheduled.
Encourage Others: Share information about the proposed IRS regulations with friends, family, and colleagues. Encourage them to join you in responding to the proposal.
Contact Your Representatives: Reach out to your local representatives and express your concerns. They can advocate for your interests and support the protection of your constitutional rights. Except if your representative is Elizabeth Warren, then never mind. See the letter she co-authored here, where she is obviously very impatient about the implementation of these rules that will restrict our freedom and liberty.
Conclusion
The IRS proposal, as outlined in REG-122793-19, represents a potential violation of our constitutional rights, particularly our right to privacy. In addition to this fundamental issue, the lack of clarity and the stifling effect on innovation are valid concerns. It is imperative that we, as citizens, take a stand to protect our liberties.
By crafting an anonymous response, submitting it, and encouraging others to do the same, we can collectively address these concerns and help ensure that our constitutional rights are preserved. It is our responsibility to hold government agencies accountable and safeguard our freedom and liberty.
Not financial or legal advice, for entertainment only, do your own homework. I hope you find this post useful as you chart your personal financial course and Build a Bitcoin Fortress in 2023.
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