New IRS Tax Rule May Harm Crypto Business and US Citizens; Coinbase Warns

Coinbase warns new IRS tax rule may harm crypto businesses and US citizens' privacy.

Coinbase, a big American crypto exchange, is warning that a new rule from the U.S. Internal Revenue Service (IRS) might threaten the crypto business and privacy of U.S. citizens. The IRS wants to set clear rules for crypto brokers to ensure they and their users pay taxes correctly. However, Coinbase expressed concern on Thursday, explaining that this rule might lead to “unlimited tracking” of Americans' daily activities.

According to Lawrence Zlatkin, Coinbase’s tax vice president, the rules are very confusing and too hard to follow. They also could harm the IRS’s efforts to improve taxpayer services. A group that supports crypto, the Blockchain Association, has also said before that such rules might seriously damage the U.S. crypto industry.

The IRS, a few hours before receiving the letter from Coinbase, spoke about how crypto is reducing tax revenues. Their new “tax gap” estimate points out the missed tax money and highlights non-compliance issues in some areas, especially concerning digital assets and cryptocurrency. 

Back in August, the Treasury Department shared its proposed rule, almost 300 pages long. It was designed to meet the requirements of the 2021 Infrastructure Investment and Jobs Act. This proposed rule includes reporting duties for various crypto platforms and entities. Meanwhile, some senators, including Sen. Elizabeth Warren, have advised the IRS to ignore complaints from the industry. Their main worry is that it will take too long to apply these rules, losing more tax money.

Coinbase is requesting the IRS to modify the proposal. They suggest focusing on compliance for those parties that directly deal with transactions in digital assets, similar to those in conventional finance. Before deciding on a final rule, the agency needs to review public comments received until the October 30 deadline.

Coinbase suggests changes in a few parts of the IRS proposal, focusing on transaction-involved parties.