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Taxes targeting DeFi investments would be awfully difficult says Coinbase VP

WHY THIS MATTERS IN BRIEF

As the public gets new ways to invest their money governments are trying to figure out how to find and tax it all, but in a DeFi world this isn’t easy.

 

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The Decentralised Finance (DeFi) industry would be “awfully challenging” for American tax authorities to survey, Coinbase’s top tax lawyer has said.

 

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A proposal from the US Department of the Treasury and the Internal Service Revenue (IRS) to target crypto exchanges is ultimately impractical says Lawrence Zlatkin, who is Vice President of Tax at America’s biggest cryptocurrency exchange.

Talking about new rules proposed by the Biden Administration earlier this year, Zlatkin said that collecting information from DEX users would be difficult.

 

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“It’d be awfully challenging to actually do that with them being peer to peer,” he added. “Let’s forget whether they shouldn’t be – how they would is an open question as well.”

Ultimately, he said Decentralised Exchanges (DEXs) shouldn’t be singled out when it comes to tracking gains and losses for traders and investors.

 

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“I don’t think a decentralised, peer to peer private network should be treated differently,” he said.

Zlatkin’s comments come following a letter he penned last week saying that the U.S. government has an “overarching expansive view” about collecting gains on taxes. He described the proposal as an “unprecedented, unchecked, and unlimited tracking on the daily lives of Americans.”

Top cryptocurrency exchanges may soon have to report customer information to the IRS under the rules proposed by the Biden Administration earlier this year – which have rattled crypto big wigs and some lawmakers. The proposal aims to “close the tax gap” by targeting what American taxpayers make from their investments.

 

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As part of the proposal, new rules would revise the definition of a “broker” by asking digital asset platforms that facilitate the buying and selling of crypto to track and report key information – which is currently how it works with stock and bond brokers.

The proposed rules would therefore also target  DEXs like Uniswap. DEXs are a big part of the DeFi industry; unlike centralised exchanges like Coinbase or Binance, they allow users to trade digital coins and tokens without signing up and giving personal information like a name, address, or providing a government ID.

The proposal targeting DEXs has rattled some in the DeFi world.

 

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The other day, Washington, D.C. non-profit Defi Education Fund said on Twitter that “the proposed ‘broker’ rulemaking… must be stopped” because it would raise “serious tax policy and privacy concerns.”

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