Oct. 28, 2023
Re: Submit Comments on S7-04-23 Safeguarding Advisory Client Assets. I'd like to make a few requests. Here are some. A/An: Request for more information on the public hearing scheduling process, including details on how requests to speak will be evaluated and selected. Inquiry into the role of education and outreach initiatives in promoting understanding and compliance with these proposed regulations among digital asset brokers and their customers, including any plans for collaborating with industry groups and professional associations to develop training materials and resources. Concern over the potential for gaming or manipulation of the reporting system by sophisticated actors seeking to exploit gaps or weaknesses in the regulatory framework. Request for further analysis of these risks and consideration of measures to address them. Inquiry into the process for soliciting feedback from affected parties after the publication of these proposed regulations, including details on how comments will be reviewed and incorporated into any subsequent revisions. Request for more information on the specific steps that will be taken to ensure the timely and accurate processing of information returns filed under these proposed regulations, including any plans for leveraging advanced analytics and machine learning algorithms to analyze and interpret the data. Request for additional guidance on how the proposed regulations interact with existing federal rules related to tax reporting and withholding. Inquiry into the process for reviewing and updating these proposed regulations as technological advancements continue to shape the landscape of digital asset transactions. Will there be opportunities for stakeholder input throughout this process? Request for more information on the specific methods and tools that will be employed by the IRS to verify the accuracy and completeness of information reported under these proposed regulations, including any plans for leveraging advanced analytics and machine learning algorithms. Request for additional guidance on how these proposed regulations will interact with existing anti-money laundering and know-your-customer requirements applicable to digital asset brokers. Will there be any coordination or alignment between these two sets of rules? Inquiry into the process for updating and maintaining documentation related to digital asset transactions, particularly in relation to changes in technology and evolving regulatory environments. Inquiry into the process for engaging with experts in the fields of economics, finance, and technology to inform the development and implementation of these proposed regulations, including details on how their insights and recommendations will be integrated into the decision-making process. Concern over the potential impact of these proposed regulations on privacy rights, especially given the increasing use of digital assets for anonymous transactions. Request for further discussion on measures taken to protect individual privacy while ensuring compliance with tax laws. Request for further explanation of the presumption rules outlined in the proposal, including how they will be applied in practice and what factors will be considered when determining whether a broker can reasonably associate a payment with valid documentation. Concern over the potential administrative burdens placed on digital asset brokers, particularly small businesses with limited resources. Request for further analysis of these impacts and exploration of targeted relief options for affected entities. Concern over the potential impact of these proposed regulations on the competitiveness of the U. S. market vis-a-vis global counterparts, particularly in light of differing regulatory frameworks around the world. Request for further analysis of this issue and consideration of ways to promote consistency and harmonization across jurisdictions. Concern over the potential burden on taxpayers who may be required to navigate multiple layers of regulation and oversight in order to comply with these proposed regulations, particularly given the complexity and nuance inherent in the digital asset space. Request for further analysis of these impacts and consideration of measures to alleviate the burden on affected taxpayers. Request for clarification on the penalties and enforcement mechanisms associated with non-compliance with these proposed regulations, including any provisions for leniency or amnesty programs for early adopters seeking to come into compliance. Request for further detail on the specific types of information that will be collected as part of these proposed regulations, including any plans for sharing this information with other government agencies or private entities. Request for more information on the specific steps that will be taken to ensure the confidentiality and integrity of the data collected under these proposed regulations, including any plans for employing robust cybersecurity measures and adhering to best practices in data management and protection. Concern over the potential for unintended consequences arising from the interaction between these proposed regulations and other aspects of the tax code, such as the treatment of fringe benefits, employee stock ownership plans, and other compensation arrangements involving digital assets. Request for further analysis and adjustments as needed to ensure coherence and consistency across all relevant provisions. Request for more information on the specific steps that will be taken to ensure the timely and accurate processing of information returns filed under these proposed regulations, including any plans for investing in new infrastructure, personnel, and capacity building initiatives. Inquiry into the potential impact of these proposed regulations on international trade and investment, particularly in relation to foreign digital asset exchanges and platforms. Are there any provisions designed to minimize negative consequences for U. S. businesses operating abroad? Request for clarification on the treatment of digital assets that serve multiple functions or purposes, such as those used as collateral for loans or deployed in decentralized finance applications, and how these complexities will be addressed through the reporting framework. Request for clarification on the treatment of digital assets that do not fit neatly into categories such as currency, security, or commodity. How will these assets be treated for reporting purposes? Concern over the potential burden on taxpayers who may be required to reconcile multiple sources of information related to their digital asset transactions, including reports filed by brokers, third-party service providers, and other intermediaries. Request for further analysis of these impacts and exploration of targeted relief options for affected individuals. Request for more information on the specific strategies and tactics that will be employed by the IRS to detect and deter non-compliance with these proposed regulations, including any plans for leveraging advanced analytics and machine learning algorithms to identify patterns of suspicious activity. Inquiry into the role of cryptographic techniques, such as zero-knowledge proofs, in facilitating compliance with these proposed regulations while preserving user privacy. Are there any plans to explore the integration of such technologies into the regulatory framework? Concern over the lack of available data to accurately estimate the number of Forms that will be filed as a result of these proposed regulations. Request for additional research and analysis to inform this estimation. Inquiry into the process for engaging with stakeholders representing diverse perspectives and interests within the digital asset community, including representatives from consumer advocacy groups, civil society organizations, and academia. Request for clarification on the applicability of these proposed regulations to non-U. S. persons engaged in digital asset transactions involving U. S. residents or properties, including any potential conflicts with international tax treaties and norms. Inquiry into the process for coordinating with state and local tax authorities in enforcing these proposed regulations, including details on how information sharing agreements will be developed and implemented. Inquiry into the process for monitoring and evaluating the overall effectiveness of these proposed regulations in achieving their stated objectives, including details on how progress will be measured and reported over time. Request for clarification on the definition of "digital asset broker" and examples of situations where a person or entity might qualify as a digital asset broker. Concern about the potential burden on small businesses due to the new reporting requirements. Request for further analysis and possible exemptions for smaller entities. Concern over the potential for unintended consequences arising from the interaction between these proposed regulations and other aspects of the tax code, such as the treatment of losses, gains, and income attributable to digital asset transactions. Request for further analysis and adjustments as needed to ensure coherence and consistency across all relevant provisions. Inquiry into the process for tracking and addressing any technical glitches or errors that may arise during the implementation of these proposed regulations, including details on how corrections and updates will be communicated to affected parties. Concern over the potential impact of these proposed regulations on the development and deployment of novel blockchain-based applications and services, particularly given the growing recognition of the transformative potential of distributed ledger technology across various sectors of the economy. Request for further analysis of these impacts and consideration of measures to strike a balanced approach between protecting public revenues and fostering innovation and growth in this dynamic field. Request for clarification on the treatment of digital assets held in trust or other fiduciary capacities, particularly in cases where the underlying assets may be subject to different reporting requirements depending on their classification. Concern over the potential chilling effect these proposed regulations could have on innovation within the digital asset industry. Request for consideration of alternative approaches that balance the need for tax compliance with fostering growth and development in this emerging sector. Concern over the possibility of increased fraud and identity theft resulting from the need to collect and store sensitive personal and financial information related to digital asset transactions. What steps are being taken to mitigate these risks? Request for more information on the specific criteria that will be used to determine whether a particular transaction qualifies as a sale or exchange for reporting purposes under these proposed regulations, including any plans for incorporating objective thresholds or benchmarks. Inquiry into the process for evaluating and refining these proposed regulations over time, based on feedback from affected parties, ongoing research and analysis, and changing circumstances within the digital asset marketplace. Inquiry into the timeline for implementation of these proposed regulations, including any interim measures that may be put in place to ensure smooth transition and compliance. Request for clarification on the role of third-party service providers in assisting digital asset brokers with compliance efforts, including any potential liability issues that may arise. Concern over the potential impact of these proposed regulations on the liquidity and stability of digital asset markets, particularly in times of economic stress or volatility. Request for further analysis of these risks and consideration of measures to mitigate them. Request for clarification on the treatment of digital assets held in custody by brokers on behalf of customers, particularly in cases where the underlying assets may be subject to different reporting requirements depending on their classification. Concern over the potential burden on small businesses that may be required to navigate multiple layers of regulation and oversight in order to comply with these proposed regulations, particularly given the complexity and nuance inherent in the digital asset space. Request for further analysis of these impacts and exploration of targeted relief options for affected entities. Request for clarification on the treatment of digital assets that are held in trust or other fiduciary capacities, particularly in cases where the underlying assets may be subject to different reporting requirements depending on their classification. Inquiry into the process for coordinating with foreign governments and regulatory bodies in enforcing these proposed regulations, including details on how information sharing agreements will be negotiated and implemented. Request for clarification on the treatment of digital assets that are issued or managed by non-profit organizations, charitable foundations, or other mission-driven entities, and how these unique characteristics will be reflected in the reporting framework. Request for more information on the specific methodologies and tools that will be employed by the IRS to analyze and interpret the vast amounts of data generated by these proposed regulations, including any plans for leveraging advanced analytics and machine learning algorithms. Concern over the potential impact of these proposed regulations on the accessibility and affordability of digital asset services for low-income and financially vulnerable populations, particularly given the growing reliance on these technologies for everyday transactions and the emergence of innovative solutions aimed at expanding financial inclusion. Request for further analysis of these impacts and consideration of measures to promote equitable outcomes and reduce barriers to entry for underserved communities. Concern over the potential chilling effect these proposed regulations could have on innovation within the broader fintech ecosystem, particularly given the rapid pace of technological change and the growing importance of digital assets as a medium of exchange and store of value. Request for further analysis of these impacts and consideration of measures to promote flexibility and adaptability in response to future developments. Request for more information on the specific steps that will be taken to safeguard the confidentiality and integrity of the data collected under these proposed regulations, including any plans for leveraging advanced analytics and machine learning algorithms to analyze and interpret the data. Concern over the potential impact of these proposed regulations on the ability of digital asset brokers to compete effectively in global markets, particularly given the increasingly fragmented nature of national tax systems and the growing emphasis on cross-border cooperation and information sharing. Request for further analysis of these challenges and consideration of measures to foster greater alignment and convergence across jurisdictions. Inquiry into the process for monitoring and evaluating the effectiveness of these proposed regulations once implemented, including details on how performance metrics will be established and tracked over time. Request for more detailed information on the estimated time burden and cost implications associated with implementing these proposed regulations, both for the IRS and for affected parties. I can't wait to read your public responses! Thanks so much for your hard work!