Uniswap’s Chief Legal Officer Says the IRS’ New Rule for DeFi Brokers Should Be Challenged
The United States Internal Revenue Service’s (IRS) recent ruling, which holds decentralized exchanges to the same reporting requirements as traditional brokers, has been met with skepticism by crypto executives and legal professionals. They believe that this ruling is likely to be challenged and may not stand the test of time.
Decentralized Exchanges Unlikely to Comply
In an interview with Xpost, Katherine Minarik, chief legal officer at decentralized crypto exchange Uniswap, expressed her concerns about the new ruling. "There’s no shortage of ways to challenge this, and it absolutely should be challenged," she said.
Minarik pointed out that the industry is still searching for a limiting principle, which would clearly define what constitutes a broker in the context of digital assets. She noted that the IRS’s definition of a broker is too broad, encompassing any service that facilitates transactions, including DeFi technology.
Congressional Review Act May Be the Answer
Uniswap CEO Hayden Adams echoed Minarik’s sentiments, expressing hope that the ruling will be rejected under the Congressional Review Act (CRA). If not, he is optimistic that it won’t withstand legal challenges. "The IRS says they’re regulating any service effectuating transactions as brokers… then goes on to classify DeFi tech as brokers… because it’s involved in just a part of a transaction… as the IRS’s own descriptions explain," Adams said.
Crypto Tax Platform CEO Weighs In
Robin Singh, CEO of crypto tax platform Koinly, emphasized the significant cost of implementing the necessary reporting systems. "For businesses operating in the DeFi space, compliance with these regulations will require both operational and technical innovation," he said.
Singh pointed out that decentralized platforms lack the centralized structures needed for traditional reporting, creating a significant hurdle for many companies. He added that the new ruling may not bring any benefits to the industry, only costs.
Blockchain Development Firm Consensys Weighs In
Consensys lawyer Bill Hughes described the ruling as "all cost, no benefit" from a revenue perspective. He noted that the outgoing administration is trying to push through the regulation before the end of its term. Hughes said the rule will require front-end platforms to track and report on both US and global users, applying to the sale of all digital assets, including non-fungible tokens (NFTs) and stablecoins.
Will Congressional Review Act Be Able to Disapprove the Rule?
Echoing a similar sentiment to Uniswap’s Adams, Hughes said that the rule will likely come under Congressional review "where it can be disapproved of." He added that this move is not unexpected, given the timing of the release. "This rule has been ready to go for a while now… They dump it on the last Friday of 2024 in the middle of a holiday stretch on purpose, obviously," Hughes said.
What Does This Mean for the Industry?
The new ruling by the IRS may have significant implications for the decentralized finance (DeFi) industry. The increased reporting requirements and costs associated with compliance may discourage businesses from operating in this space. However, it’s worth noting that many are optimistic that the rule will be rejected or challenged successfully.
Key Takeaways
- The IRS ruling has been met with skepticism by crypto executives and legal professionals.
- Decentralized exchanges are unlikely to comply with the new reporting requirements due to technical and operational challenges.
- Congressional Review Act may be the answer for rejecting the rule if it’s deemed too burdensome.
- Blockchain development firm Consensys weighs in on the potential implications of this ruling.
