Coinbase Tax Chief Warns IRS Unprepared for Crypto Reporting Surge

Coinbase’s top tax executive has warned U.S. lawmakers that the Internal Revenue Service (IRS) is not ready to handle the massive wave of crypto tax data soon to be reported by exchanges. Speaking at a Senate Finance Committee hearing, Lawrence Zlatkin, Coinbase’s vice president for tax, said the agency lacks the infrastructure to absorb the scale of transactions expected under new reporting rules. According to Zlatkin, “this is one asset class that is so democratized that we are talking about billions of transactions,” raising concerns about administrability as regulations evolve.

The IRS recently introduced new crypto brokerage reporting forms, but several key issues remain unresolved. Lawmakers are still debating whether to exempt small-scale transactions from taxation (the “de minimis” exemption), how to treat staking rewards, and whether stablecoins should be excluded from capital gains rules. Senator Mike Crapo highlighted the lack of clarity, noting that the tax code does not provide straightforward answers for everyday digital asset transactions like donations, lending, or buying coffee with crypto.

Some senators criticized the crypto industry, with Senator Elizabeth Warren pointing to lobbying efforts aimed at securing “special tax rules” to benefit wealthy crypto investors. Others, such as Senator Ron Wyden, acknowledged the need for tax reform but suggested Congress has a long list of priorities to address first. Meanwhile, the IRS itself is facing staffing shortages and leadership gaps in its crypto division, further complicating enforcement.

The industry is pushing for relief on several fronts, including exempting small payments from reporting and ensuring staking rewards are only taxed upon sale. Senator Cynthia Lummis has introduced legislation proposing a $300 de minimis exemption, but its future remains uncertain.

Adding to the complexity, the IRS recently released tentative guidance offering relief for companies with large crypto holdings. For example, MicroStrategy’s Michael Saylor welcomed the update, saying it shields his firm from the Corporate Alternate Minimum Tax on unrealized Bitcoin gains, while miner Marathon Digital (MARA) also praised the move. Still, this guidance remains preliminary, leaving businesses waiting for definitive rules.