Coinbase Issues Warning Against IRS Proposal on Crypto Taxation
Describing the recent IRS move to impose taxes on cryptocurrencies as "confusing," Coinbase, a prominent U.S. cryptocurrency exchange, argues that the Internal Revenue Service's (IRS) proposal not only jeopardizes the crypto industry but also threatens the privacy of American citizens.
The IRS recently introduced a regulation aimed at officially defining crypto brokers and providing guidance on proper tax compliance procedures. However, Lawrence Zlatkin, Coinbase's Vice President of Tax, expressed concerns in a letter, stating that this initiative would lead to an "unprecedented, unregulated, and boundless surveillance of the daily lives of Americans." Zlatkin emphasized that the proposed framework would impose a complex and overly burdensome set of new reporting requirements, ultimately undermining the very taxpayer services the IRS intends to improve.
The Blockchain Association, a U.S.-based crypto advocacy group, had previously raised worries that implementing these provisions could stifle the industry in the United States.
In parallel with Coinbase's response, the IRS offered its own assessment of the crypto sector's impact on tax revenues. They pointed to a "tax gap" estimate, which highlights the disparity between anticipated and actual tax revenue. The estimate underscored the role of crypto in exacerbating this issue, particularly in areas related to digital assets and cryptocurrency where compliance enforcement is challenging.
In August, the Treasury Department unveiled a comprehensive 300-page proposed regulation, aimed at aligning with the 2021 Infrastructure Investment and Jobs Act. The regulation outlines reporting obligations for centralized crypto exchanges, payment processors, specific hosted wallet providers, decentralized exchanges, and individuals or entities involved in the redemption of crypto tokens.
Senator Elizabeth Warren and other Democratic senators also addressed the IRS this week, urging the agency to stand firm against industry complaints. Their primary concern was the potential delay in the enforcement of the proposed rules, which could disadvantage law-abiding Americans and lead to the federal government missing out on billions of dollars in tax revenue. They recommended implementing the rule "as swiftly as possible."
In contrast, Coinbase has called on the IRS to reconsider the proposal, suggesting that compliance requirements should be limited to parties directly facilitating transactions in digital assets, similar to those in traditional finance.
The agency is tasked with a thorough review of the public feedback received by the October 30 deadline before arriving at a final decision on the matter.
Read more: CryptoETF Innovations by ProShares: Embracing Ether and Beyond