Over the last few days, I have seen a ton of posts and takes on the recent announcement from the U.S. Internal Revenue Service, or IRS for short. Like a couple of other U.S. agencies, the IRS is often hated for the reason of their creation and purpose... they are the U.S.'s tax man and I do not think I have ever met someone who has ever liked paying taxes. 

Reasoning for Release

So what was the announcement that made the crypto industry so heated? After a couple of false starts and postponements, the IRS released its proposed crypto tax rules for crypto brokers (think Coinbase, Kraken, OpenSea, and DeFi platforms). This was something that the IRS was required to create and release after the $1 trillion 2021 Infrastructure Investment and Jobs Act was signed into law. When this legislation was crafted it was expected to generate roughly $28 billion over 10 years for the Federal Government. Given the prices and current economic situation, I think it is safe to say that this is something that is not going to happen.  

Outcry and Issues Already Emerge

Practically as soon as the proposed rules were released the outcry began. We saw some of the expected players release comments against (Coinbase, the Blockchain Association, and the DeFi Education Fund) but also from new and emerging players in the space like House Financial Services Chairman Patrick McHenry. Typically a single politician would not mean that much since they are only one person however the Committee he Chairs is the clear leader in US finance policy. Chair McHenry was quick to come out and issue a statement about how this policy isn't a step forward or in the right direction and how if anything it further causes issues and confusion. 

While CEXs could easily adopt practices and software to satisfy the IRS requirements that is far from the case with the DEXs they are trying to apply the same thing to. Since a DEX is a piece of software launched and then run without or very minimal human interference it isn't like they can follow the same path as CEXs. Quiet frankly given what the IRS wants and the fact that it really just is not possible for DEXs a huge issue without an answer emerges. 

Next Steps and Outlook

Since these are proposed rules that means that there is an ability for everyone to issue comments or feedback on these proposed rules until October 30th. Once that deadline hits there will be public hearings on November 7th and 8th. Now those two things are the only things that are currently finalized as there are several other things that could come into play and really change what is going on. The most obvious is that Chairman McHenry has come out against it and since he has bipartisan support on a slew of crypto legislation bills he could easily add or amend one of these things to address or fix the DEX issue. Another easy fix would be to include something in the upcoming spending bills to address this. 

Final Thoughts 

Only time will tell what path or route is taken but it is important to remember that this would not go into effect until 2026 for the 2025 tax returns. There is plenty of time for changes to be made and this to be addressed. We just have to remember to keep pressure on the government for this to make sure they do not do anything and then suddenly it is 2026 wreaking havoc. 

Please know I am not a financial advisor and make sure you do your own research! If you enjoyed this article and would like to support me further below are a few referral links that if you used when signing up I would appreciate it! Also, follow me on Twitter @Cje95_

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