Oct. 20, 2023
AGENCY: Securities and Exchange Commission. ACTION: Proposed rule; reopening of comment period. SUMMARY: The Securities and Exchange Commission (“Commission”) is reopening the comment period for its proposal (“Proposed Rules”) to amend the rule under the Securities Exchange Act of 1934 (“Exchange Act”) that defines certain terms used in the statutory definition of “exchange.” The reopening provides supplemental information and economic analysis regarding trading systems that trade crypto asset securities that would be newly included in the definition of “exchange” under the Proposed Rules. The Commission is requesting further information and public comment on certain aspects of the Proposed Rules as applicable to all securities and the compliance dates and other alternatives for the Proposed Rules. The Proposed Rules were set forth in Release No. 34–94062 (“Proposing Release”), and the related comment period, which was reopened in Release No. 34–94868 on May 9, 2022, ended on June 13, 2022. The reopening of this comment period is intended to allow interested persons further opportunity to analyze and comment on the Proposed Rules in light of the supplemental information provided herein (“Reopening Release”). Comments for the record: 50+ million Americans are immediately affected by these poorly crafted agency rules. The following areas are insufficiently covered in the proposed regulations and must be addressed prior to any final rule. 1. Clarification on the definition of "digital asset broker" and examples of situations where a person or entity might qualify as a digital asset broker. 2. Address concern about the potential burden on small businesses due to the new reporting requirements. Conduct further analysis and possible exemptions for smaller entities. 3. Submit additional guidance on how the proposed regulations interact with existing federal rules related to tax reporting and withholding. 4. The process for updating and maintaining documentation related to digital asset transactions, particularly in relation to changes in technology and evolving regulatory environments does not currently exist. 5. The potential impact of these proposed regulations on privacy rights, especially given the increasing use of digital assets for anonymous transactions must be further examined. Request for further discussion on measures taken to protect individual privacy while ensuring compliance with tax laws. 6. Request 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? 7. Examine 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? 8. Document with detailed information the estimated time burden and cost implications associated with implementing these proposed regulations, both for the IRS and for affected parties. 9. Document and present 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? 10. Provide 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. 11. Resolve concerns 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. 12. Provide 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. 13. Present 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? 14. Rectify that there is insufficient information on the public hearing scheduling process, including details on how requests to speak will be evaluated and selected. 15. Explicitly address concerns 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. 16. Provide 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. 17. Further address the timeline and limitations for implementation of these proposed regulations, including any interim measures that may be put in place to ensure smooth transition and compliance. 18. Provide clarification and financial analysis 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. 19. Address concerns over the potential impact of these proposed regulations on the competitiveness of the U.S. market vis-à-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. 20. Provide specific 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? 21. Layout the specific 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. 22. Provide detailed 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. 23. Address the concerns 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. 24. Further understanding 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? 25. Missing is 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. 26. There is virtually no oversight of forethought 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. 27. Further inquiry into the process for monitoring and evaluating the effectiveness of these proposed regulations once implemented is required, including details on how performance metrics will be established and tracked over time. 28. Provide additional 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. 29. Address 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. 30. What will be 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? 31. Require and share 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. 32. Provide detailed analysis 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. 33. Provide a detailed examination 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. 34. Provide a detailed 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. 35. Examine the very real and proximate 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. 36. How will 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? 37. Provide 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. 38. Address the 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. 39. Inquire 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. 40. Provide 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. 41. Address the 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. 42. Define 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. 43. Request for more information from the agencies 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. 44. Answer concerns 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. 45. How will 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. 46. Require an analysis to clarify 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. 47. Provide cost/benefit analyses for 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. 48. Lacking is an 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. 49. Provide 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. 50. Compute via cost/benefit analyses 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. 51. Prior to any final rule establish a 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. 52. 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. 53. 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. 54. Provide further 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. 55. 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. 56. 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. 57. 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. 58. 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. 59. Resolve the 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. 60. 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. Richard Rooney [REDACTED]