The decentralized finance sector would be a “terrible challenge” for U.S. tax authorities to investigate, according to Coinbase’s top tax attorney.
A proposal from the Treasury Department and the Internal Service Revenue (IRS) to target crypto exchanges is ultimately impractical, Lawrence Zlatkin, vice president of tax at America’s largest cryptocurrency exchange, told reporters. Declutter.
Speaking of new rules suggested by the Biden administration earlier this year, Zlatkin said collecting information from DEX users would be difficult.
“It would be a huge challenge to actually do that if they are peer-to-peer,” he added. “Let us forget whether it should not be so; how that should be done is also an open question.”
Ultimately, he said decentralized exchanges (DEXs) should not be singled out when it comes to tracking profits and losses for traders and investors.
“I don’t think a decentralized, peer-to-peer private network should be treated any differently,” he said.
Zlatkin’s comments come in the wake of a letter he wrote last week in which he said the US government has an “overarching, expansive view” on collecting profits on taxes. He described the proposal as an “unprecedented, unmonitored and unrestricted monitoring of the daily lives of Americans.”
Under the rules, major cryptocurrency exchanges will soon be required to report customer information to the IRS suggested by the Biden administration earlier this year — which has left crypto big wigs and some lawmakers in an uproar. The proposal aims to “close the tax gap” by focusing on what American taxpayers earn from their investments.
As part of the proposal, new rules would revise the definition of a “broker” by requiring digital asset platforms that facilitate the buying and selling of cryptocurrencies to track and report key information – which is currently how it works with stocks – and bond brokers.
The proposed rules would therefore also be targeted decentralized exchanges (DEXs) such as Uniswap.
DEXs make up a large part of the DeFi industry; unlike centralized Exchanges like Coinbase or Binance allow users to trade digital coins and tokens without signing up and providing personal information such as a name, address or a government ID.
The proposal targeting DEXs has left some in the DeFi world reeling.
7/ The consequence…
Hardware and software developers and protocol developers may need to proactively collect personal information about others that they do not need or regularly access, raising serious tax policy and privacy concerns. pic.twitter.com/wWHUX5p66J
— DeFi Education Fund (@fund_defi) October 16, 2023
Today, Washington, DC-based nonprofit Defi Education Fund said on Twitter that “proposed ‘broker’ regulations… should be halted” because it would “raise serious tax policy and privacy concerns.”