Coinbase has voiced significant concerns regarding a recent proposal put forth by the Internal Revenue Service (IRS), contending that it poses a potential threat to both the cryptocurrency industry and the privacy of American citizens.
The IRS’s proposal aims to establish clear definitions for crypto brokers and outline the appropriate tax payment procedures for them and their clientele.
However, Coinbase has taken the stance, articulated in a formal comment letter addressed to the agency, that this proposal introduces an “unprecedented, unchecked, and unlimited tracking on the daily lives of Americans.”
Based on the letter, Lawrence Zlatkin, the vice president of tax for Coinbase Global Inc, said:
“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.”
Coinbase is not the only entity expressing reservations about the IRS’s approach.
The Blockchain Association, a prominent crypto advocacy group in the United States (US), had previously warned that adopting the proposed provisions could have severe repercussions for the domestic crypto industry.
Coinciding with Coinbase’s commentary, the IRS addressed its concerns about crypto’s impact on tax revenues.
The agency unveiled a “tax gap” estimate, shedding light on the extent of tax revenue shortfalls compared to what the agency should rightfully be collecting.
This estimate specifically identified crypto-related transactions as a growing area of concern, citing difficulties in monitoring noncompliance, particularly with digital assets and cryptocurrencies.
In August, the Treasury Department published an extensive 300-page proposed rule designed to align with the 2021 Infrastructure Investment and Jobs Act.
This rule outlines reporting obligations for centralised cryptocurrency exchanges (CEX), payment processors, certain hosted wallet providers, select decentralised exchanges (DEX), and individuals or entities involved in redeeming crypto tokens.
Notably, several Democratic senators, including Senator Elizabeth Warren, penned a letter to the IRS, urging the agency to remain steadfast in the face of industry complaints.
Their primary apprehension centred on the perceived delay in the rule’s implementation, which they feared would disadvantage law-abiding Americans and lead to substantial losses in federal tax revenue.
They encouraged the IRS to expedite the rule’s enforcement.
In contrast, Coinbase has advocated for a revision of the proposal, specifically to limit compliance requirements to entities directly involved in transactions of digital assets, akin to traditional financial practices.
The IRS is now tasked with reviewing the public comments received before the 30 October deadline, a crucial step toward finalising the rule.