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Extensive data collection on crypto users proposal by IRS

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TL;DR

  • IRS crypto data collection sparks privacy concerns.
  • Infrastructure Investment Act reshapes crypto oversight.
  • Public values privacy in financial transactions

In a move that has sparked significant debate and concern within the cryptocurrency community, the Internal Revenue Service (IRS) is proposing new regulations that would require crypto service providers to collect extensive data about their users. The IRS’s proposed measures, outlined in a nearly 300-page document, are a response to the Infrastructure Investment and Jobs Act, which aimed to increase financial surveillance over cryptocurrency users.

The Infrastructure Investment and Jobs Act, originally focused on infrastructure development, took an unexpected turn when lawmakers introduced provisions aimed at enhancing financial surveillance of cryptocurrency transactions. These provisions were added to boost tax revenue by targeting potential tax evasion among cryptocurrency users. At the time, the Joint Committee on Taxation estimated that these measures would generate approximately $28 billion in tax revenue over a decade.

However, just months later, the Biden administration presented a starkly different estimate, suggesting that only $2 billion would be collected over the same period. This discrepancy raised questions about the accuracy of the initial revenue projections and cast doubt on the necessity of such intrusive data collection.

IRS’s proposal raises concerns

The IRS’s proposal, while not as severe as it could have been, still raises concerns about user privacy and data security within the cryptocurrency ecosystem. One particularly troubling aspect of the proposal is the criteria used to determine who should be required to report customer information. The proposal suggests that a person’s obligation to report customer data is based on whether they have the capability to collect such information, rather than whether they typically do so. This means that even businesses that have no intention of collecting sensitive personal data from customers may be compelled to report it simply because they have the technical capacity to do so.

The push for increased financial surveillance is part of a broader trend in the United States, where the government has been steadily expanding financial reporting requirements. Initiatives like the Bank Secrecy Act and the Patriot Act have laid the groundwork for these measures, and the provisions in the Infrastructure Investment and Jobs Act are the latest iteration of this effort. However, some argue that it is time to reevaluate the entire premise of extensive financial surveillance.

Protecting fourth amendment rights

Critics of the current approach argue that it encroaches on Americans’ Fourth Amendment rights, which protect against unreasonable searches and seizures. They contend that businesses should not be compelled to report customer data to the government by default, especially for routine financial activities such as using cryptocurrency for payments, receiving small amounts of money through platforms like PayPal, or receiving a paycheck. These activities should not automatically result in individuals being added to a government database, according to those who advocate for privacy rights.

Public opinion also appears to align with concerns about privacy and government intrusion. A survey conducted by the Cato Institute found that 79 percent of Americans consider it unreasonable for banks to share financial information with the government. Additionally, 83 percent believe that the government should be required to obtain a warrant before accessing an individual’s financial information. These findings suggest that a significant portion of the population values privacy and wants safeguards in place to protect their financial data.

As the October 30 response deadline for public comments approaches, stakeholders are carefully considering the implications of the IRS’s proposal. While it is essential to address tax evasion and uphold the law, striking the right balance between financial transparency and individual privacy remains a complex challenge.

Moreover, the responsibility to address these concerns does not solely rest with the IRS. Ultimately, it is Congress that must take action to reform the system as a whole. The IRS is simply carrying out the mandates set by lawmakers. Therefore, it is incumbent upon Congress to carefully examine the potential consequences of extensive data collection on cryptocurrency users and consider whether adjustments to the current framework are necessary.

Disclaimer: The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

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Benson Mawira

Benson is a blockchain reporter who has delved into industry news, on-chain analysis, non-fungible tokens (NFTs), Artificial Intelligence (AI), etc.His area of expertise is the cryptocurrency markets, fundamental and technical analysis.With his insightful coverage of everything in Financial Technologies, Benson has garnered a global readership.

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