Coinbase, the largest cryptocurrency exchange, has voiced its concerns over the U.S. Internal Revenue Service (IRS) proposal regarding cryptocurrency tax regulations. According to Coinbase, this proposal has the potential to harm both the cryptocurrency industry as a whole and the privacy of American citizens. The IRS proposal aims to provide precise definitions for cryptocurrency brokers and establish clear tax payment procedures for them and their clients, with the goal of increasing transparency in the cryptocurrency industry and generating more tax revenue. Coinbase, however, has taken a firm stance against these regulations and has expressed its concerns in a formal comment letter to the agency.
The Threat to Privacy
Coinbase argues that the IRS proposal introduces “unprecedented, unchecked, and unlimited tracking into the daily lives of American citizens.” The exchange believes that the proposed regulations would result in invasive government surveillance of Americans’ daily activities, igniting significant concerns about potential privacy rights infringements. They caution against the implementation of overly complex and broad regulations that could impede the application of tax laws to cryptocurrency transactions while advocating for fair treatment of cryptocurrencies, specifically treating them similarly to traditional financial assets.
“The proposal introduces unprecedented, unchecked, and unlimited tracking into the daily lives of American citizens.” – Coinbase
Coinbase and Other Entities Express Reservations
Coinbase is not alone in raising concerns about the IRS’s approach. The Blockchain Association, a cryptocurrency advocacy group, has also expressed reservations and argued that implementing these provisions could have a detrimental impact on the cryptocurrency industry in the United States. Prior to Coinbase’s response, the IRS itself acknowledged the concerns about cryptocurrencies affecting tax revenues.
The IRS is worried about the “tax gap” and the amount of tax revenue it should be collecting but isn’t, with cryptocurrencies being a part of this growing issue. The agency had previously raised concerns about noncompliance in the digital assets and cryptocurrency sectors. In response to these concerns, Coinbase’s Vice President of Tax, Lawrence Zlatkin, emphasized the need for clearer guidelines and compliance requirements limited to parties directly involved in digital asset transactions, similar to those in traditional finance.
“The IRS introduced these proposed guidelines in August, which included mandates for reporting investor purchase costs.” – Lawrence Zlatkin, Vice President of Tax for Coinbase Global Inc.
Industry and Government Debates Continue
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 any delay would disadvantage law-abiding Americans and result in a significant loss of tax revenue for the federal government. Coinbase, on the other hand, has requested the IRS to revise the proposal, focusing compliance requirements on parties directly involved in digital asset transactions, similar to regulations in the traditional finance sector. Public comments on these proposals will be accepted until October 30, and a public hearing has been scheduled for November 11.
