Blockchain Advocacy Group Raises Privacy Concerns Over IRS Crypto Tax Form

The Digital Chamber of Commerce, a leading trade association in the blockchain industry, has issued its opinion on Form 1099-DA filed by the United States Internal Revenue Service (IRS) for reporting digital asset transactions.

The council's detailed response highlights the importance of simplifying the form, making it easier for brokers to use digital assets linked to digital assets such as cryptocurrencies. It also highlights privacy concerns, including requiring information needed to report digital asset transactions by taxpayers.

Excessive data requests and privacy concerns

The council criticized the draft form for asking for too much information. He notes that the final form only requires information necessary for basic tax reporting, but brokers may need to include additional details for certain IRS tests.

A blockchain advocacy group has raised concerns about the form's request for access to sensitive information such as transaction IDs and digital asset addresses. He argues that these details may violate taxpayer privacy and should only be collected if they are suspected of criminal activity.

The feedback indicated that the draft form indicated the need for certain broker instructions that were not included. Shampoo recommends the IRS release instructions for public review before brokers complete the form to ensure they can complete it correctly.

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It was also suggested that the form should allow brokers to indicate if the digital asset is subject to a different tax rate, for example if there are tokens that are treated as collectibles and subject to a higher tax rate. This is to prevent errors in the IRS process and ensure accurate tax reporting.

The IRS released the draft form on April 18 and invited comments. The Chamber of Commerce's input follows its earlier comments on related regulations proposed in November 2023.

Under the draft form, brokers will issue a Form 1099-DA for each customer who sells or exchanges digital assets. Brokers include kiosk operators, digital asset payment processors, hosted wallet providers, unhosted wallet providers and more.

After announcing the proposed reporting requirements, the crypto community weighed in. The Blockchain Association said the regulation contains “fundamental misunderstandings about the nature of digital assets and decentralized technology.”

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