The US Internal Revenue Service (IRS) today unveiled proposed regulations that could significantly impact the operations of major US-based cryptocurrency exchanges, including industry giants like Coinbase Global Inc (NASDAQ:COIN). and Kraken.
Under the proposals, digital asset trading platforms, digital asset payment processors and other stakeholders would be mandated to file information returns and provide payee statements for digital asset dispositions carried out for customers.
Real estate agents would also need to include the fair market value of digital asset considerations in their reports, meaning that if someone buys a property using bitcoin or another digital asset, the value of that asset at the time of the transaction would need to be reported.
For major cryptocurrency brokers operating in the US, these proposed regulations represent a significant overhaul of their reporting systems.
They would need to ensure that every transaction, be it a sale, purchase, or exchange of digital assets, is meticulously recorded and reported to the IRS.
Not only will these proposals increase operational costs, but they could drive significant traffic away from their services.
Anonymity, or more accurately pseudonymity, is one of the pillars of cryptocurrency and the IRS is effectively asking the conduits of crypto transactions to doxx their customers.
This is unlikely to fly with a large contingent of Coinbane, Kraken et al’s customer base.
On the IRS’s side, the tax collector believes that unpaid taxes on crypto taxes are a major contributor to the half-a-trillion-dollar yearly US tax deficit (i.e., the gap between taxes owed and collected).
It’s a classic conundrum: Will taxing the rich risk a mass exodus of capital? Or in this case, will taxing the crypto bros just bolster unregulated crypto markets in offshore jurisdictions, leaving legit exchanges like Coinbase shortchanged?
Both sides of the fence will have their say at a public hearing scheduled for November 7, with a potential second date on November 8 if there's an overflow of participants.
If the IRS has its way, US crypto bros’ pseudonymity may be on borrowed time.