Coinbase’s tax leader has requested the IRS to reconsider its proposed cryptocurrency tax guidelines.
Coinbase, one of the prominent digital asset platforms, has openly objected to the U.S. Treasury Department’s new propositions on digital asset transaction reporting by brokers. The company’s chief concerns center around potential invasions of user privacy and perceived imbalances when compared to traditional financial services.
In a letter released Thursday, Coinbase’s Vice President of Tax Lawrence Zlatkin conveyed disapproval over the proposed regulations. He described them as an “unprecedented, unchecked, and unlimited” intrusion into the daily affairs of American citizens.
The context for this debate lies in the 300-page proposal issued by the IRS in August. The proposal, stemming from the Infrastructure Investment and Jobs Act, revises the definition of “broker” to encompass cryptocurrency exchanges. Its aim is to standardize tax reporting practices for digital assets, mirroring those of traditional financial systems.
Despite the two-year projected timeline for the implementation of these rules, several U.S. Senators have already voiced that they consider this duration too lengthy, advocating for expedited application.
A point of contention expressed by Zlatkin is the detailed level of oversight the rules would necessitate. He mentions in the letter that under such regulations, governmental agencies could potentially monitor everyday choices of Americans, ranging from their private healthcare decisions to the mundane act of purchasing coffee.
Coinbase’s recommendation to the IRS and the Treasury is twofold: To narrow down compliance mandates to entities directly participating in digital asset transactions, and to allow ample time to design intricate systems for compliance. They also see potential in leveraging blockchain for tax reporting.
Zlatkin stressed the disproportionate reporting requirements these regulations would introduce. He fears the IRS may become overwhelmed with trivial data, many of which might not even bear any significant taxable income.
The overarching sentiment in Coinbase’s letter suggests a disparity in tax reporting standards between the crypto world and its traditional counterpart. The concern is that the proposal’s broad interpretations could encompass virtually anyone aiding in digital asset transactions, making services more sluggish, expensive, and inefficient.
Zlatkin also drew parallels with the 2008 crisis, noting that financial entities back then were granted a more lenient five-year compliance window.
Closing the letter, Zlatkin alluded to another upcoming letter from Coinbase, which promises deeper technical insights into these regulations.