For two years, the cryptocurrency world has been waiting to see how the Internal Revenue Service (IRS) would implement the Infrastructure Investment and Jobs Act. Simply put, this law creates new reporting requirements that threaten to put a de facto ban on cryptocurrency mining and expose millions of Americans to new criminal offenses. The good news is that the IRS’s nearly 300-page proposal isn’t quite as bad as it could have been under the law. However, this is far from saying that it is a good policy.

As citizens, businesses, and consultants finish drafting their comment letters before the October 30 response deadline, it is important to take a step back and realize why companies are not required to report customers to the government by default.

Back in 2021, the Infrastructure Investment and Jobs Act was about building roads, bridges and the like, not about cryptocurrencies or financial reporting. It wasn’t until funding was sorely needed to offset the spending that members of Congress rolled back two provisions for increased financial oversight of cryptocurrency users. Their argument was that increased surveillance would increase tax revenue, and they accused cryptocurrency users of tax evasion.

Related: New tax rules could mean a mass exodus of cryptocurrency companies in the US

At the time, the Joint Committee on Taxation estimated that the provisions would generate about $28 billion in tax revenue over 10 years. Without a way to replace the funding, attempts to remove the controversial reporting requirements were ultimately rejected.

The $28 billion figure was questionable at the time. Less than a year later, the Biden administration released its budget, which included vastly different estimates. In contrast to the $28 billion estimated by the Joint Committee on Taxation, the Biden administration estimated that only $2 billion would be obtained over the next 10 years. Now, even that number may be an exaggeration, as Treasury officials acknowledged that the estimates were based on a very different market.

With cost balancing out the window, what remains appears to be just another brick in America’s fiscal control wall.

Again, the IRS proposal doesn’t seem as bad as it could have been since the proposal currently excludes miners and some software developers. However, the proposal chooses a troubling path to determine who should be required to report clients.

This hypothesis appears to depend in part on “whether the person is in a position to know information about the customer’s identity, rather than whether the person would ordinarily know this information.” The proposal states that this distinction is made because some platforms “have a policy of not requesting customer information or requesting only limited information (but) have the ability to obtain information about their customers by updating their protocols.” For this reason, the proposal states that the IRS expects that some decentralized exchanges and self-hosted wallets will have to report their customers’ private information.

The IRS reports receiving 1,726 comments so far.

These are entry-level numbers.

Unless you want:

– Every crypto website and wallet contains your Social Security Number (SSN), and

– Nodes, developers, governance, and LPs to act as intermediaries in cases of technical non-compliance,

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— CryptoTaxGuy.ETH ⌐◨-◨ ️ (@CryptoTaxGuyETH) October 17, 2023

In other words, although businesses may have no reason to collect sensitive personal information from customers, the basis on which the IRS works is whether they have the ability to do so. This may be somewhat limited given the focus on companies providing the service, but it appears that the “capacity to collect information” is little more than “virtual collection.”

Although worrying, this approach should not be surprising. The U.S. government has slowly begun to establish broader financial reporting requirements through the Bank Secrecy Act, the Patriot Act, and numerous other laws and regulations. The provisions in the Infrastructure and Jobs Investment Act and the resulting IRS proposal are just the latest version of this expanded framework.

Related: Get ready for a swarm of incompetent IRS agents in 2023

But rather than continuing to expand the scope and depth of financial surveillance, now should be a good time to question the premise as a whole. And in a country where Americans are supposed to be protected by the Fourth Amendment, companies should not be forced to report their customers to the government by default. Activities like using cryptocurrency for payments, receiving more than $600 on PayPal after a garage sale, or taking a paycheck from a job should not put you in a government database.

Moving away from the surveillance status quo would require fundamental changes in US law, but that doesn’t mean doing so is a radical idea. When surveyed by the Cato Institute, 79 percent of Americans said it was unreasonable for banks to share financial information with the government, and 83 percent said the government should need a court order to obtain financial information.

It is those principles that should guide the discussion forward. So, as the October 30 response deadline approaches, commentators will have to weigh what the proposal says and what it doesn’t say.

Moreover, although the current focus is largely on the IRS, we should not forget that the responsibility for reforming the current state and status quo of fiscal oversight rests with the halls of Congress. Ultimately, the IRS is doing what Congress told it to do. So, it’s Congress that needs to step in to fix the system as a whole.

This article is for general information purposes and is not intended and should not be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.