Coinbase, the largest cryptocurrency exchange, argues that the U.S. Internal Revenue Service (IRS) proposal regarding cryptocurrency tax regulations could potentially harm both the cryptocurrency industry and the privacy of American citizens.
Recently, the IRS proposed a rule that aims to provide precise definitions for cryptocurrency brokers and establish clear tax payment procedures for them and their clients. This effort is in response to the IRS’s goal of increasing transparency in the cryptocurrency industry and generating more tax revenue.
However, Coinbase has taken a firm stance on this matter, as expressed in a formal comment letter to the agency. They argue that the proposal introduces “unprecedented, unchecked, and unlimited tracking into the daily lives of American citizens.”
The IRS further advocates for fair treatment of cryptocurrencies, treating them similarly to traditional financial assets. They also caution against overly complex and broad regulations that could impede the application of tax laws to cryptocurrency transactions.
Coinbase firmly contends that these regulations would result in invasive government surveillance of Americans’ daily activities, sparking significant concerns about the potential infringement on privacy rights.
Interestingly, just a few hours before Coinbase’s letter, the IRS released its statement regarding cryptocurrencies potentially affecting tax revenues.
IRS Faces Pushback from Crypto Industry and Advocacy Groups Over Tax Regulations
Coinbase is one of many entities expressing reservations about the IRS’s approach.
The Blockchain Association, a cryptocurrency advocacy group in the United States, had previously expressed concerns and argued that implementing these provisions could have a detrimental impact on the cryptocurrency industry within the United States.
Coinciding with Coinbase’s commentary, the IRS addressed its concerns about crypto’s impact on tax revenues.
The IRS expressed concerns about the “tax gap” and the amount of tax revenue the agency should be collecting but isn’t, with cryptocurrencies being a part of this growing issue.
Prior to Coinbase’s response, the IRS raised concerns about crypto’s impact on tax revenue, particularly regarding noncompliance in the digital assets and cryptocurrency sectors.
According to the letter from the vice president of tax for Coinbase Global Inc., Lawrence Zlatkin stated that:
“These rules would establish an incomprehensible and unduly burdensome set of new reporting requirements that will degrade and displace the same taxpayer services the IRS is seeking to improve.”
The IRS introduced these proposed guidelines in August, which included mandates for reporting investor purchase costs.
IRS Unveils Sweeping Regulations for Cryptocurrency Reporting Under the Infrastructure and Jobs Act
Nearly two years ago, the Infrastructure and Jobs Act (IIJA) was passed, expanding broker information reporting to digital asset transactions and mandating IRS rulemaking to implement the statute.
In August, the IRS published its long-awaited proposal, a nearly 300-page document intended to align with the 2021 Infrastructure Investment and Jobs Act. This proposal introduces new reporting obligations for centralized crypto exchanges, payment processors, certain hosted wallet providers, some decentralized exchanges, and entities that redeem crypto tokens.
While it exempts investors and miners from reporting requirements, its comprehensive scope could impact all segments of the cryptocurrency ecosystem.
Recently, Senator Elizabeth Warren and other Democratic senators wrote a letter to the IRS, urging the agency to address industry complaints and expedite the implementation of these regulations.
They argue that the delay would disadvantage law-abiding Americans and result in a significant loss of tax revenue for the federal government.
However, Coinbase has requested the IRS to revise the proposal, limiting compliance requirements to parties directly involved in digital asset transactions akin to those in traditional finance.
Public comments on these proposals will be accepted until October 30, and a public hearing was scheduled for November 11.