The Blockchain Association, a prominent advocacy group based in Washington DC, has issued a formal objection to the Internal Revenue Service's (IRS) proposed broker-dealer rules, arguing that they impose an undue burden on investors, cryptocurrency companies, and the IRS itself. The association's letter specifically cites violations of the Paperwork Reduction Act, which aims to prevent unnecessary and burdensome paperwork requirements.

In their letter, the Blockchain Association detailed the significant impact these rules would have if enacted. The group highlighted that the new regulations would necessitate the processing of 8 billion 1099-DA tax forms, resulting in an estimated 4 billion hours of labor and an annual compliance cost of $254 billion. These figures starkly contrast with the IRS's initial projections, which suggested the new rules would require only 0.15 hours per customer and total compliance costs of $136.35 million.

The Blockchain Association argues that these costs are disproportionate to the actual tax gap generated by the cryptocurrency market, which they estimate at most to be $10 billion annually. They assert that the proposed compliance costs, amounting to $245 billion annually, are excessively burdensome for the nascent digital asset class.

This recent objection follows a comprehensive 39-page letter sent by the Blockchain Association to the IRS in 2023. In that document, the association characterized the proposed broker reporting rules as overreach by the government, pointing out that entities within the blockchain ecosystem, particularly decentralized finance (DeFi) protocols, would struggle to comply. The letter emphasized what the group sees as "fundamental misunderstandings" by U.S. government officials regarding cryptocurrencies, digital assets, and decentralized finance, which they believe have led to impractical regulatory proposals.

The proposed IRS tax rules have sparked significant backlash within the crypto community, with many individuals and institutions criticizing the requirements as out-of-touch. Jerry Brito, executive director at Coin Center, echoed the Blockchain Association's objections, noting the logistical challenges of imposing these reporting requirements on decentralized networks and their participants.

The Blockchain Association's latest objection underscores the broader tension between regulatory bodies and the rapidly evolving cryptocurrency industry. As the debate continues, the advocacy group remains committed to highlighting the operational and financial burdens that such regulations would impose on the crypto sector, calling for a more informed and reasonable approach to regulation.