Coin Center responds to US lawmakers’ request for crypto tax guidance

Cryptocurrency advocacy group Coin Center has provided suggestions for United States lawmakers to consider in potential legislation related to the taxation of digital assets.

In an Aug. 21 letter to Sens. Ron Wyden and Mike Crapo, Coin Center pointed to the Virtual Currency Tax Fairness Act — a bill previously introduced in other sessions of Congress — for provisions, including having the Internal Revenue Service (IRS) establish a de minimis exemption for crypto transactions. The measure could be aimed at encouraging crypto as a method of payment by treating digital asset transactions like ones used to purchase foreign currency.

Secondly, the advocacy group called for lawmakers to consider not applying U.S. tax law reporting requirements for second parties to digital assets. According to Coin Center, a crypto user in the United States could be legally required to provide “incomplete or non-existent” information on senders of digital assets, creating privacy concerns and an undue burden on filers.

“[F]orcing ordinary people to collect highly intrusive information about other ordinary people, and report it to the government without a warrant, is unconstitutional under the Fourth Amendment,” said Coin Center. “[D]emanding that politically active organizations create and report lists of their donors’ names and identifying information to the government is unconstitutional under the First Amendment.”

Today, @coincenter responded to @SenateFinance @RonWyden & @SenFinance @MikeCrapo‘s request for policy input on the taxation of digital assets. https://t.co/px3MEcigHf

— Landon (@Landon) August 21, 2023

Other suggestions for Wyden and Crapo to consider included revising the IRS definition of a broker to explicitly exclude crypto miners and Lightning node operators, among others, as well as limit the agency’s authority to issue legal summons for alleged tax evaders. The advocacy group cited a 2016 case in which the IRS issued a subpoena to Coinbase with a “John Doe” summons, allowing the agency to gain a large amount of user data from individuals who may not have been involved in any potential tax reporting violations.

Coin Center added on the matter:

“If we set a precedent that merely dealing in bitcoin could result in a firm’s customers easily losing their financial privacy, it would have severe consequences for bitcoin and the related blockchain ecosystem.”

According to Coin Center, the IRS also needed to consider providing guidance on block rewards, airdrops and hard forks for tax purposes and not require a qualified appraiser for certain donations made in cryptocurrency. The suggestions followed a July request from the U.S. Senate Financial Services Committee, which will be accepting responses on crypto tax guidance through Sept. 8.

Addressing the tax gap — the amount of taxes owed versus those actually paid to the government — has been an ongoing issue in the U.S. as the crypto space expands. Though some legislation, including the bipartisan infrastructure bill passed in November 2021, has attempted to address some of the issues surrounding taxes on cryptocurrency, critics of the legislation have pointed to seemingly impossible reporting requirements for retail investors.

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