The cryptocurrency community has eagerly awaited the Internal Revenue Service’s (IRS) implementation of the Infrastructure Investment and Jobs Act for the past two years. This law introduced new reporting requirements that posed a potential de facto ban on cryptocurrency mining and exposed millions of Americans to new felony charges. Fortunately, the IRS’s nearly 300-page proposal is not as dire as it could have been under the law, but it still falls short of being good policy.
As individuals, companies, and consultants finalize their comment letters before the October 30 deadline, it is crucial to step back and understand why businesses should not be obligated to report customers to the government by default.
Looking back to 2021, the Infrastructure Investment and Jobs Act was primarily focused on building infrastructure like roads and bridges. It had nothing to do with cryptocurrency or financial reporting. It was only when funding was urgently needed to offset spending that members of Congress added two provisions to enhance financial surveillance over cryptocurrency users. Their argument was that increased surveillance would boost tax revenue, effectively accusing cryptocurrency users of tax evasion.
At the time, the Joint Committee on Taxation estimated that these provisions would generate around $28 billion in tax revenue over a decade. Despite efforts to eliminate the controversial reporting requirements, there was no viable alternative to replace the funding, and thus, the provisions remained in place.
The $28 billion revenue estimate was questionable from the start. Less than a year later, the Biden administration released its budget, which provided a significantly different estimate. In contrast to the Joint Committee on Taxation’s projection, the Biden administration anticipated only $2 billion in revenue over the next ten years. Furthermore, even that figure might be an overestimation as Treasury officials acknowledged that the estimates were based on a very different market.
With the cost-offsetting objective abandoned, what remains is another piece in the puzzle of U.S. financial surveillance. While the IRS’s proposal is not as severe as it could have been, it still raises concerns about the criteria used to determine which entities should report customers. The proposal seems to consider “whether a person is in a position to know information about the identity of a customer” rather than whether they would ordinarily possess such information. The IRS expects some decentralized exchanges and self-hosted wallets to be compelled to disclose their customers’ private information based on this distinction. Essentially, businesses may be required to collect sensitive personal information from customers even if they have no reason to do so. The ability to collect information becomes a default requirement.
While this approach is disconcerting, it should not come as a surprise. The U.S. government has been gradually expanding financial reporting requirements through acts like the Bank Secrecy Act and the Patriot Act. The provisions in the Infrastructure Investment and Jobs Act and the subsequent IRS proposal are just the latest examples of this expanding framework.
Instead of continuing to expand financial surveillance, it is time to question the underlying premise. In a country where the Fourth Amendment is meant to protect Americans, businesses should not be compelled to report their customers to the government by default. Activities like using cryptocurrency for payments, receiving more than $600 on PayPal from a garage sale, or receiving a paycheck should not automatically land individuals in a government database.
Breaking away from this surveillance status quo may require significant changes to U.S. law, but it is not a radical idea. According to a survey conducted by the Cato Institute, 79 percent of Americans believe it is unreasonable for banks to share financial information with the government, and 83 percent believe the government should obtain a warrant to access financial information.
These principles should guide the ongoing discussion. While the October 30 deadline for responses is imminent, commenters should carefully consider both what the proposal entails and what it fails to address.
Furthermore, although the focus is currently on the IRS, it is essential to remember that the responsibility for fixing the current situation and the broader financial surveillance lies with Congress. At the end of the day, the IRS is simply following the instructions given to it by Congress. Therefore, it is Congress that must step in and reform the system as a whole.
Nicholas Anthony, a policy analyst at the Cato Institute’s Center for Monetary and Financial Alternatives, emphasizes these points. He is the author of “The Infrastructure Investment and Jobs Act’s Attack on Crypto: Questioning the Rationale for the Cryptocurrency Provisions” and “The Right to Financial Privacy: Crafting a Better Framework for Financial Privacy in the Digital Age.”
This article provides general information and should not be considered legal or investment advice. The views expressed here are solely those of the author and do not necessarily reflect the opinions of Cointelegraph.