Coinbase tax head calls on IRS to revise crypto tax rules

The IRS’s proposed tax rules hinder digital asset growth by imposing restrictions that question their utility, Coinbase’s Vice President of Tax wrote Thursday

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Coinbase has voiced strong opposition to the US Treasury Department’s proposed rules on broker reporting of digital asset transactions, citing concerns over user privacy and an uneven playing field with traditional financial services.

In a letter disclosed on Thursday, Lawrence Zlatkin, Coinbase’s Vice President of Tax, criticized the proposed regulations for imposing an “unprecedented, unchecked and unlimited tracking on the daily lives of Americans.” 

In August, the IRS issued a 300-page proposal that revises the definition of a “broker” in accordance with the Infrastructure Investment and Jobs Act, including crypto exchanges, which provides guidelines on tax compliance for both the brokers and their clients.

Policymakers have touted the act as an attempt to bring tax reporting standards for the industry in line with those of other traditional financial sectors. 

The IRS intends to implement those rules in two years, which drew criticism from leading US Senators who urged the agency to push for swifter implementation, on Wednesday.

Regardless of the timeline, Zlatkin said the rules would require “government surveillance of the choices Americans make about their most private health care decisions, or even when they purchase a cup of coffee.”

Coinbase is urging the IRS and the Treasury to revise the proposed regulations, limiting compliance requirements to parties directly involved in digital asset transactions akin to traditional finance. The company is also advocating for sufficient time to develop complex systems for compliance and to explore blockchain solutions for tax reporting.

“The proposed regulations, as written, would impose an incomprehensible and unduly burdensome set of new reporting requirements,” Zlatkin wrote, highlighting concerns that the IRS would be “bombarded with data,” including trivial transactions with “zero or negligible taxable income.”

The letter also emphasized a lack of parity between the crypto sector and traditional finance in tax reporting. It argues that Congress intended the legislative language to cover entities directly involved in asset transactions, akin to traditional financial brokers. 

However, the proposed rules interpret this so broadly that it could include anyone facilitating digital asset transactions, the letter reads.

“The result will be services that are slower, costlier and far less efficient,” Zlatkin said, adding that the unrealistic timelines for compliance contrast sharply with the five-year period given to financial institutions in 2008.

The regulations exceed mere tax reporting on financial gains, implying that tax codes are being used to pick winners and losers in tech — a misuse of tax legislation, he added.

Coinbase’s letter is the first of two it plans to submit, with the next expected to offer more detailed technical comments, Zlatkin said.


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