In a bold move that has captured the crypto community’s attention, Coinbase, the popular cryptocurrency exchange, has voiced its concerns regarding proposed tax reporting regulations by the Internal Revenue Service (IRS). In a comment letter submitted recently, Coinbase claims that the IRS is pushing for “unprecedented, unchecked, and unlimited tracking on the daily lives of Americans.”
The regulations in question, which pertain to tax reporting for digital assets and were introduced as part of last year’s infrastructure bill, have drawn criticism from Coinbase. The company argues that if these rules are implemented as written, they would open the door to “government surveillance” that extends into the private lives of individuals, reaching as far as monitoring health decisions and even coffee purchases.
Lawrence Zlatkin, Coinbase’s Vice President of Tax, expressed the company’s concerns, stating, “The Proposed Regulations far exceed Congressional authorization. Treasury and the IRS have interpreted ‘broker’ to cover industry participants that do not effectuate transactions in digital assets.”
The primary focus of the IRS proposal is to define which entities should be classified as brokers responsible for reporting digital asset transactions to the agency. However, Coinbase contends that these regulations are too broad in scope, potentially encompassing software providers, miners, and other peripheral services, forcing them to collect and submit customer tax information.
Coinbase’s argument revolves around the idea that this all-encompassing approach could lead to an overwhelming influx of reports concerning small transactions that typically don’t trigger tax obligations. This flood of data would not only create redundancy but also compromise the privacy of individuals by permanently linking their cryptocurrency wallets to their identities.
In their letter, Zlatkin highlighted the gravity of the situation, stating, “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 has urged the IRS to bring its broker definition more in line with existing securities regulations and also explore the potential of blockchain-based solutions to simplify tax reporting.
This development from Coinbase comes at a time when the IRS is under mounting pressure to finalize comprehensive crypto tax guidelines. Recently, a group of US senators has called on the IRS to expedite the implementation of crypto tax rules before 2026. The debate over cryptocurrency taxation is far from over, and the outcome will undoubtedly shape the future of the industry.