Coinbase’s Tax Head Calls on IRS to Rethink Proposed Crypto Tax Rules

Coinbase, a leading cryptocurrency platform, has expressed its disagreement with the U.S. Treasury Department’s recent suggestions for broker reporting on digital asset transactions. The company’s primary reservations include possible infringements on user privacy and a perceived disparity in relation to conventional financial systems.

Lawrence Zlatkin, Coinbase’s Vice President of Tax, shared his concerns in a letter published this Thursday. He remarked on the proposed rules as an “unprecedented, unchecked, and unlimited” interference into the daily lives of Americans.

The backdrop to this discussion is the IRS’s 300-page draft from August, born from the Infrastructure Investment and Jobs Act. It seeks to expand the “broker” definition to include cryptocurrency exchanges, with the objective of aligning tax reporting standards for cryptocurrencies with those of established financial sectors.

While the proposal sets a two-year window for these regulations to come into effect, some U.S. Senators believe this to be too extended and are pushing for a quicker roll-out.

Zlatkin emphasized his apprehension over the extent of surveillance the regulations could entail. He pointed out that such rules might enable government bodies to oversee everyday decisions of citizens, from personal healthcare choices to simple daily purchases like coffee.

Coinbase’s dual suggestion to the IRS and the Treasury involves narrowing the focus to entities directly engaged in cryptocurrency transactions and allocating sufficient time for the development of intricate compliance systems. Furthermore, Coinbase believes there’s merit in utilizing blockchain technology for tax purposes.

A central concern voiced by Zlatkin is the excessive reporting these rules might mandate. He warns of the risk of inundating the IRS with inconsequential details, much of which might not even result in substantial taxable income.

The letter from Coinbase highlights an apparent disparity in the tax obligations between the digital asset universe and its conventional counterpart. The broad interpretations proposed could potentially cover any entity involved in digital transactions, which could slow down services and increase costs and inefficiencies.

Drawing a comparison to the financial crisis of 2008, Zlatkin pointed out that financial institutions were allowed a more generous five-year timeframe for compliance back then.

Zlatkin concluded his letter by mentioning an upcoming correspondence from Coinbase that will offer a more detailed technical perspective on the regulations.