Cryptocurrency advocacy group Coin Center has offered US legislators recommendations about drafting any future legislation related to digital assets taxation.
Coin Center cited the Virtual Currency Tax Fairness Act in a letter to Sens. Ron Wyden and Mike Crapo on August 21. The bill’s provisions include requiring the Internal Revenue Service (IRS) to create a de minimis exemption for cryptocurrency transactions.
By categorizing transactions involving digital assets as if they were for the purchase of foreign currencies, the proposal might be intended to promote the use of cryptocurrency as a payment mechanism.
Furthermore, the advocacy organization urged lawmakers to take into account excluding digital assets from the reporting obligations for second parties under US tax law.
A cryptocurrency user in the US would be legally compelled to disclose even “incomplete or non-existent” information on senders of digital assets, raising privacy issues and placing an excessive load on filers, Coin Center claimed.
CCN reached out to Coin Center for commentary but did not receive a reply at the time of publishing
“Forcing ordinary people to collect highly intrusive information about other ordinary people, reporting them to the government without a warrant, is unconstitutional under the Fourth Amendment,” Coin Center said .
“Demanding politically active organizations to create and report lists of their donors’ names and identifying information to the government is unconstitutional under the First Amendment.”
Other ideas for Wyden and Crapo to take into account included changing the IRS definition of a broker to specifically exclude individuals like crypto miners and Lightning node operators as well as limiting the agency’s ability to issue court summonses for alleged tax evaders.
The advocacy group mentioned a 2016 instance in which the IRS served Coinbase with a “John Doe” summons and issued a subpoena.
This allowed IRS to obtain a significant amount of user data from people who might not have been implicated in any potential tax reporting issues.
On the subject, Coin Center added : “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.”
Coin Center claims IRS should also take into account offering guidelines on block rewards, airdrops and hard forks for tax purposes and not requiring a licensed appraiser for some Bitcoin donations.
Coin Center recommendations came in response to a request made in July by the U.S. Senate Financial Services Committee, which would receive replies regarding tax advice for cryptocurrency through September 8.
This is not the first time Coin Center criticises a legislation as few months ago the crypto policy think thank blasted a new Senate DeFi bill , saying it would grant the U.S. Treasury overbroad authority while violating freedom of speech.
“The bill gives virtually unbounded discretion to the Secretary to decide what it would take to designate one as having ‘control’ of a protocol,” Coin Centre wrote in a blog .
For instance, contributors to open-source software might be included in this control.
“This is likely not what the authors of the bill have in mind but it’s what the plain meaning of the bill they wrote would allow the Secretary to do,” Coin Centre added .
Coin Centre isn’t the only crypto-related company that has criticized the government. Lately, Coinbase has been the main part of court turmoils and due diligence by the SEC.
In April this year, Coinbase asked for “clarity on regulations regarding crypto” in a mandamus petition it submitted to the federal government. After carefully considering the petition, the SEC made a decision to respond, which disappointed several parties.
The regulator stated that the “mandamus petition should be denied” and that “Coinbase has no right to mandamus, which requires a government agency to carry out specific duties.”
Furthermore, Ripple’s victory in July caused repercussions in the cryptocurrency market. SEC’s lawsuits about the legal standing of cryptocurrencies gave exchanges like Coinbase newfound optimism.
SEC launched a lawsuit alleging that the US-based cryptocurrency network Ripple’s native token, XRP, was an unregistered securities. Judge Analisa Torres decided in Ripple’s favor.
Torres ruled that, as long as it was traded on cryptocurrency exchanges, XRP was not a security because there was no assurance that investors would make money from their investments.
More crucially, the decision reopened the debate about how the US government feels about cryptocurrencies. Congressmen are now pressing the regulatory body to establish clear rules on what counts as securities and the conditions under which digital assets should be securely traded.
Regarding tax matters, another big exchange had several issues as in June this year, Binance.US and the SEC struck an arrangement that, according to a consent decree , avoids the freezing of exchange assets in exchange for increased openness and control.
According to the agreement, information on “encumbrances or limitations that would make them unavailable for transfer or withdrawal by customers… and whether there are sufficient assets to satisfy customer liabilities or meet customer claims for customer assets held on their behalf within 10 calendar days of service of such request,” are needed.
Last but not least, Binance.US will be required to submit monthly reports to the SEC detailing its “ordinary course business expenses.”
IRS will pay close attention to revenue earned from cryptocurrencies because they are no longer the newest financial asset.
With the growth of the cryptocurrency industry, addressing the tax gap – the difference between taxes owed and those actually paid to the government – has been a persistent problem in the US.
Even if certain laws, such as the bicameral infrastructure bill enacted in November 2021, tried to solve some of the problems relating to taxes on cryptocurrencies, detractors of the legislation have criticised the somewhat onerous reporting requirements for retail investors.