Cryptocurrency advocacy group Coin Center recently issued a number of suggestions to United States lawmakers regarding possible taxation legislation for digital assets. The organization highlighted the Virtual Currency Tax Fairness Act in a letter dated 21st August sent to Senators Ron Wyden and Mike Crapo. One proposition was for the Internal Revenue Service (IRS) to establish a De Minimis exemption to promote crypto transactions akin to digital asset operations mimicking purchases with foreign currency.
However, some may argue this could potentially encourage underreporting of small-scale transactions. Meanwhile, Coin Center also proposed a reconsideration of tax reporting requirements application to second parties dealing with digital assets, which could potentially alleviate privacy concerns and undue burden concerning non-existent or incomplete sender data requirements.
On the flip side, critics may argue that this could provide a loophole for those seeking to evade taxes. Moreover, Coin Center made provoking suggestions that weren’t without controversy. The group urged for a revision of the IRS’s definition of a broker to explicitly exclude crypto miners and lightning node operators, among others. They also called for limitations on the agency’s authority to issue legal summons for alleged tax evaders.
Once again, the concern here is the potential misuse of these exemptions by those seeking to dodge their tax obligations. Coin Center’s stance emerged from a 2016 case involving the IRS issuing a sweeping subpoena to Coinbase that compromised user data for many who were not indicated in any tax reporting violations.
Notwithstanding the potential negative implications, Coin Center claimed that if a precedent is set where transacting in bitcoin could compromise the financial privacy of a company’s customers, it would suffer serious consequences for the blockchain ecosystem. With the U.S. Senate Financial Services Committee accepting feedback on crypto tax guidance until September 8, the diverse opinions surrounding it will undoubtedly contribute to a compelling dialogue about the future of blockchain taxation.
At the end of the day, these ongoing discussions reflect the wider conflicts and concerns involved in the integration of a still-developing technology into a well-established financial system. Undeniably, the road towards fruitful regulations seems to be a challenging one that requires both time and careful considerations.