In a 14-page letter addressed to the Internal Revenue Service (IRS) on October 12th, Coinbase, a leading crypto exchange, expressed serious reservations regarding the “nature and scope” of the proposed tax regulations associated with gross proceeds and basis reporting for digital asset transactions. The exchange emphasized its longstanding advocacy for a tax system that treats digital assets on par with traditional financial assets.
Coinbase argues that the proposed regulations, as currently drafted, would subject Americans to unprecedented and unlimited government surveillance, intruding on personal choices, including health care decisions and even everyday purchases like a cup of coffee. The crypto exchange contends that these rules create a complex and excessively burdensome set of new reporting requirements that could be broader and easier to implement.
In its letter, Coinbase outlined six primary concerns: the lack of parity with traditional financial services, duplicative and burdensome reporting, infringement on privacy, violation of tech neutrality, an unrealistic compliance timeline, and a missed opportunity to leverage blockchain for improved taxpayer compliance. The exchange concluded that the broad nature of the proposed rules would hinder the IRS in enforcing tax laws on cryptocurrency transactions involving U.S. individuals.
Coinbase’s Take On Proposed Regulations
On October 10th, a group of Democratic Senators, led by Sen. Elizabeth Warren of Massachusetts, called on the IRS and Treasury Department to expedite the implementation of tax reporting requirements for crypto brokers. They expressed concerns that the final rule would not be effective until 2026, citing a nearly two-year delay in issuing the regulations by the Treasury.
The proposed regulations aim to treat crypto brokers similarly to traditional financial brokers, requiring them to provide necessary information to crypto users for tax filing and report information on specific crypto sales. The Infrastructure Investment and Jobs Act prompted these regulations to be passed in 2021, which included provisions to enhance reporting by brokers on customer crypto activity.
The Senators argue that swift implementation is crucial to curb industry efforts to evade regulation, provide clarity to law-abiding taxpayers, and generate substantial tax revenue from the crypto sector. The letter was signed by Senators Angus King, Richard Blumenthal, Bernie Sanders, Sheldon Whitehouse, Brian Schatz, and Gary Peters.
The Treasury plans to hold a public hearing on November 7th and is actively considering feedback from approximately 140 comment letters received to date. Public comments on the proposed rules are open until the end of October.
Coinbase intends to submit further detailed observations and technical comments in an upcoming letter. The tax authority will continue accepting comments until October 30th, allowing stakeholders to contribute to shaping crypto tax regulations in the United States.
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