New Tax Reporting Requirements Create Burden for Retail Crypto Users
Coinbase, the major cryptocurrency exchange, has voiced serious concerns about the new U.S. tax reporting rules for digital assets. The company argues that these requirements create unnecessary complexity, particularly for everyday retail investors who trade relatively small amounts.
Lawrence Zlatkin, Coinbase’s vice president of tax, explained the situation in a recent interview. He pointed out that the rules require reporting on transactions that don’t actually generate taxable income. Stablecoins, for instance, are designed to maintain a fixed value, so trading them typically doesn’t create gains or losses. Yet under the new system, these transactions must be reported anyway.
“People should pay taxes where they have income,” Zlatkin said. “Do you have income on $USDC? No, you don’t. So why are we reporting $USDC transactions?”
The Administrative Burden on Small Transactions
The exchange is currently sending millions of American crypto holders new 1099-DA forms. These forms are meant to bring cryptocurrency reporting in line with traditional financial assets. But Zlatkin questions whether this approach makes sense for small-scale retail activity.
“Frankly, [small retail] transactional flow is so small, I just don’t know why we’re spending efforts as a country focused on them,” he noted. “I just think it does a disservice to people when you’re trading 50 bucks, let’s say, that you get a form like this and you have to report gains or losses.”
Even gas fees—those tiny payments made to process blockchain transactions—add to the reporting clutter. These might amount to just 50 cents or a dollar, yet they still need to be documented under the new rules.
Missing Information Creates Confusion
This year presents a particular challenge because Coinbase will only provide the IRS with gross proceeds from digital asset sales, not the net value or cost basis. That means traders themselves must calculate their actual acquisition costs and tax basis. The company plans to start calculating cost basis for customers next tax year, but for now, the responsibility falls on individual users.
Ian Unger, Coinbase’s director of tax reporting information, acknowledged this creates confusion, especially for people who have never owned traditional assets like stocks. Crypto adds another layer of complexity because holdings often move between different platforms and get swapped between various coins and tokens.
“That’s not the world we live in today for crypto assets,” Unger said. “There could be a world where some of this does get easier for those who buy and sell on one exchange and want to move to another exchange. But we’re not there yet, and so until we get there, there’ll be a lot of confusion.”
Looking Toward Solutions
Coinbase’s current focus is on education and developing tools to help users navigate these reporting requirements. The company recognizes that calculating cost basis for cryptocurrency can be particularly challenging compared to traditional investments.
When stock investors move shares between brokers, those transactions come with transfer statements that include cost basis information. Crypto doesn’t have that standardized system yet. Zlatkin suggests the reporting requirements should focus on areas where real income exists, rather than creating paperwork for transactions that don’t generate taxable gains.
“We should focus on where there’s real income to get people to voluntarily comply,” he argued. “But not where there’s no income, such as in stablecoins or in tiny, tiny transactions that are mostly network fees.”
The situation highlights the ongoing challenge of fitting cryptocurrency into existing financial frameworks. While the intention behind the new rules might be reasonable—creating parity between crypto and traditional assets—the implementation seems to be creating more complexity than clarity for many users.
