Coinbase (COIN) says new U.S. tax-reporting rules for crypto are cluttered, confusing

Cryptocurrency trading giant Coinbase (COIN) has expressed concerns over the new U.S. tax reporting requirements, labeling them as overly burdensome for many crypto holders and unnecessarily cluttering the country’s taxation system. The rules require reporting transactions in stablecoins and even the small amounts spent on gas fees, which has raised eyebrows within the industry.

Coinbase is currently issuing new 1099-DA forms to millions of American crypto holders in an effort to align crypto taxation with traditional finance. However, the company’s VP of tax, Lawrence Zlatkin, believes that the focus on small retail transaction flows is misguided and places an unnecessary administrative burden on individuals trading small amounts of crypto.

The new system requires trading platforms like Coinbase to share details of customers’ digital asset transactions with the IRS. While customers are copied in on the forms, they are still responsible for reconciling their gains and losses with the tax authority.

One of the challenges of aligning crypto with traditional finance is the complexity of the assets and transactions involved. Coinbase will only provide the IRS with the gross proceeds of digital asset sales, leaving traders to calculate their acquisition costs and actual tax basis. This can be confusing, especially for those who are new to owning assets like stocks.

Zlatkin also highlighted some over-reporting issues in the system, such as the need to report stablecoin holdings, whose value remains fixed. Additionally, reporting gas fees for small crypto transactions adds further clutter to the reporting process.

Moving forward, Coinbase aims to educate users on tax reporting requirements and develop tools to simplify the calculation of cost basis on crypto assets. However, the lack of standardized transfer statements for crypto assets means that confusion may persist until a more streamlined system is in place.

Overall, Coinbase believes that the focus should be on reporting income where it exists, rather than cluttering the system with unnecessary details. The company is committed to helping users navigate the complexities of crypto taxation and hopes to streamline the process in the future.