The U.S. is developing domestic reporting rules for the tax treatment of cryptocurrencies and debating the trade-offs different models offer, a top Treasury Department official said.
The choice is between an approach focused on risk, like the international Common Reporting Standard, or one that focuses on tax liabilities by reporting transactions, Erika Nijenhuis, senior counsel at the department’s office of tax policy, said during a virtual event Thursday.
“None of those are easy questions,” Nijenhuis said. She made the remarks at the OECD’s 2020 Global Blockchain Policy Forum.
“There are trade-offs among all of them and we are hard at work thinking about all of those issues.”
At issue is the burden each approach puts on cryptocurrency parties, like exchanges, and the range of benefits, like enhancing compliance, each approach provides, she said.
The U.S. shouldn’t create reporting rules that focus on transactions because large amounts of aggregate data will put an enormous burden on exchanges and aren’t necessarily helpful for enforcing tax laws, an official from a major cryptocurrency exchange said in response.
“You get tons of information, but more isn’t always better,” Lawrence Zlatkin, vice-president for tax at Coinbase, Inc., told the panel.
The U.S. tends to have its own interpretation of how global financial reporting rules should work, which leads to a parallel evolution from norms elsewhere, Zlatkin said.
“The lack of symmetry creates a lot of pressure on an exchange,” he added.
The Organization for Economic Cooperation and Development is currently working on technical proposals to ensure an adequate and effective level of reporting and exchange of information, the Paris-based group said in a report released in October.
Lisa Zarlenga, partner at Steptoe & Johnson LLP, told the panel that even if exchanges had to report aggregate information to authorities, individual taxpayers would still have to do some substantial calculations, like determining their total gains or losses on their cryptocurrency holdings.
“There is always going to be some level of compliance duty for the taxpayer,” Zarlenga said.