IRS proposed regulation
Is your crypto business banned?

96 / UPDATE ME

Episode notes

• Proposed IRS regulation

Proposed US regulation: https://www.regulations.gov/document/IRS-2023-0041-0001

1. It defines “hosted wallet providers”, look to read comments
2. “For purposes of these proposed regulations, NFTs also are digital assets that may represent artwork; antiques; written compositions, articles, or commentaries; music; videos; films; fashion designs; or sports or other entertainment memorabilia, the sale of which is not currently subject to reporting under section 6045.”
   1. This is what brokers (OpenSea?) need to report to the government for your 1099-B filings // also includes reporting your cost basis
3. A public hearing has been scheduled for November 7, 2023, beginning at 10 a.m. ET, in the Auditorium at the Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC.
4. What notes should I prepare for this hearing?
   1. Talk about OpenSea and how they maintain effective custody of assets via a backdoor
   2. Directly propose how to make a decentralized exchange that is exempt from these reporting requirements
   3. Name drop Community Service Hour
   4. The NFT circulator – can require infinitely many pages of reporting?
   5. Respond to the “request comments” parts of the letter
   6. “…whether the application of reporting rules only to “persons” (as described in the next paragraph) adequately limits the scope of reporting obligations to platforms that have one or more individuals or entities that can update, amend, or otherwise cause the platform to carry out the diligence and reporting rules of these proposed regulations”
   7. “The Treasury Department and the IRS request comments regarding the extent to which holders of governance tokens should be treated as operating a digital asset trading platform business as an unincorporated group or organization” wowza
   8. Recommend allowing “round trip” cost basis rather than market basis / because many of these assets are not properly valuable
      1. 100 Beans
      2. → 25 Chickens
      3. → 120 Beans
      4. You should only get taxed on the +20 beans!?!/ right!??!? it should wash out
5. Current listed comments: https://www.regulations.gov/document/IRS-2023-0041-0001/comment
   1. Requesting to allow “net-net reporting” across each service https://www.regulations.gov/comment/IRS-2023-0041-0005 // address the existential threat to our climate that is posed by proof-of-work cryptocurrency networks such as Bitcoin
   2. Good luck enforcing it https://www.regulations.gov/comment/IRS-2023-0041-0006
   3. Please give longer review period https://www.regulations.gov/comment/IRS-2023-0041-0012
   4. “does not specify the criteria or characteristics that make a digital asset subject to the rule” https://www.regulations.gov/comment/IRS-2023-0041-0002