Coinbase, a leading cryptocurrency exchange, has voiced concerns that the U.S. Internal Revenue Service’s (IRS) recent proposal on cryptocurrency tax guidelines might adversely impact the crypto sector and infringe upon the privacy rights of U.S. citizens.
The IRS’s latest proposition seeks to define cryptocurrency brokers explicitly and lay down transparent tax protocols for both brokers and their customers. This initiative stems from the IRS’s intent to bolster transparency in the crypto realm and augment tax collections.
Yet, in a detailed response to the agency, Coinbase emphasized its reservations about the proposal, highlighting that it could usher in “an unprecedented level of surveillance into Americans’ daily activities.”
The IRS emphasizes the need for cryptocurrencies to be regarded on par with conventional financial assets. At the same time, they warn against adopting exceedingly intricate and expansive rules that could hinder the application of tax statutes to crypto dealings.
However, Coinbase strongly believes that these proposed guidelines could pave the way for intrusive oversight into the day-to-day actions of U.S. citizens. This raises alarm bells about potential breaches of privacy rights.
In a noteworthy turn of events, just hours before Coinbase made its sentiments known, the IRS publicized its viewpoint on how cryptocurrencies could impact tax earnings.
IRS Faces Pushback from Crypto Industry and Advocacy Groups Over Tax Regulations
Coinbase isn’t the only organization voicing concerns about the IRS’s proposed guidelines.
Earlier, the Blockchain Association, a prominent U.S. cryptocurrency advocacy group, articulated apprehensions, suggesting that such provisions could potentially undermine the U.S. cryptocurrency sector.
Parallel to Coinbase’s statements, the IRS shed light on its worries surrounding the influence of cryptocurrencies on tax revenue.
Specifically, the IRS highlighted the “tax gap,” referring to the disparity between the expected tax revenue and the actual amount collected. Cryptocurrencies, according to the agency, play a role in exacerbating this issue.
Before Coinbase’s rebuttal, the IRS highlighted the ramifications of crypto on tax revenue, especially pointing to issues of noncompliance within the realms of digital assets and cryptocurrency.
Lawrence Zlatkin, the Vice President of Tax for Coinbase Global Inc., remarked in a letter:
“The proposed regulations would implement a perplexing and excessively onerous set of reporting standards, ultimately undermining and sidelining the very taxpayer services the IRS aims to enhance.”
Back in August, the IRS rolled out these suggested guidelines, encompassing requirements to report the purchasing costs of investors.
IRS Unveils Sweeping Regulations for Cryptocurrency Reporting Under the Infrastructure and Jobs Act
Close to two years back, the Infrastructure and Jobs Act (IIJA) was ratified, broadening broker information reporting pertaining to digital asset dealings. It also called for the IRS to frame rules to execute the law.
Come August, the IRS unveiled its much-anticipated proposal, an exhaustive document spanning almost 300 pages, designed to be in harmony with the 2021 Infrastructure Investment and Jobs Act. This proposed regulation lays down fresh reporting directives for centralized cryptocurrency exchanges, payment processors, specific hosted wallet providers, selected decentralized exchanges, and entities redeeming crypto tokens.
Even though the regulation exempts investors and miners from its reporting stipulations, its all-encompassing nature could reverberate across the entire cryptocurrency landscape.
In a recent development, Senator Elizabeth Warren, accompanied by fellow Democratic senators, penned a letter to the IRS. They pressed the agency to address concerns raised by the industry and hasten the rollout of these new rules.
They believe that any postponement could unfairly penalize compliant Americans and lead to substantial revenue losses for the federal government.
On the other hand, Coinbase has petitioned the IRS to reconsider and tailor the proposal. They suggest narrowing down the compliance obligations to entities directly engaged in digital asset operations, mirroring the practices in the conventional financial sector.
The IRS will be accepting public feedback on these propositions until October 30, with a public hearing set for November 11.