Coinbase Challenges IRS’s Proposed Crypto Tax Rules Over Privacy Concerns

In a formal comment letter, Coinbase communicated its reservations, noting that the proposed rule would inject “unprecedented, unchecked, and unlimited tracking into the daily lives of American citizens.”

Coinbase has urged the IRS to ensure cryptocurrencies receive equitable treatment, akin to conventional financial assets. They’ve also highlighted the risk of broad and convoluted regulations that could hinder the tax implications of cryptocurrency transactions.

Amid these discussions, the IRS highlighted potential impacts of cryptocurrencies on tax revenues just hours prior to Coinbase’s letter.

Coinbase isn’t alone in its skepticism.

The U.S.-based Blockchain Association has previously shared concerns, suggesting that such tax provisions could potentially harm the domestic cryptocurrency landscape.

In tandem with Coinbase’s statement, the IRS shed light on the growing “tax gap” challenge, emphasizing the lost revenues due to noncompliance within the digital assets sector.

Lawrence Zlatkin, vice president of tax for Coinbase Global Inc., remarked, “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.”

In alignment with the 2021 Infrastructure Investment and Jobs Act, the IRS rolled out its elaborate proposal in August. This guideline proposes extensive reporting responsibilities for various entities within the crypto realm, although it spares investors and miners.

The Infrastructure and Jobs Act (IIJA), passed nearly two years ago, demanded detailed reporting from the cryptocurrency sector.

Recently, Senator Elizabeth Warren, joined by fellow Democratic senators, petitioned the IRS to expedite the enactment of these guidelines, emphasizing that delays could result in substantial federal revenue losses.

However, Coinbase’s stance is clear – they want the IRS to adapt the proposal to only entail compliance from entities directly involved in crypto transactions, mirroring traditional financial frameworks.

The IRS will continue to entertain public feedback on this proposal until October 30, with a public discussion slated for November 11.