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Lawrence Zlatkin: Stablecoins are designed to be stable and consistent and traded at par with the US dollar. Yes, there have been examples where there have been deep pegging. I'm not going to go into Luna and other extreme cases, but even Usdc has pegged for a period of time during the Silicon Valley bank crisis. But 99.9% of the time it's intended to trade within a fraction of decimal of the US dollar. So in essence, we're not reporting a gain or loss. So it's over reporting of data. [00:00:30] There's no fundamental purpose for that. I would just argue that the only reason for that is surveillance.

Blake Oliver: Are you an accountant with a continuing education requirement? You can earn free Nasba approved CPE for listening to this episode, just visit earmarked app in your web browser. Take a short quiz and get your certificate.

Blake Oliver: Hey everyone, and welcome to the earmark podcast. Today I'm joined by Lawrence Zlatkin, vice president of tax at Coinbase. Lawrence has [00:01:00] a front row seat to some of the biggest tax questions in digital assets, from 1099 Da reporting and cost basis challenges to the broader policy debates shaping crypto taxation in Washington. In this conversation, we'll break down what tax pros need to know now and where the rules may be headed next. Lawrence, welcome to the earmark podcast.

Lawrence Zlatkin: It's a pleasure. Glad to glad to be here. As I said, everyone wants to talk about tax as a friend of mine. So all good.

Blake Oliver: So Lawrence, our audience is [00:01:30] mostly tax and accounting professionals. And crypto is an area where a lot of firms are trying to separate what actually matters from all of the noise. So today I want to keep this practical. We're going to talk about 1099 d a cost basis. Why crypto taxes still so hard to define how stablecoins fit into the picture, what's happening in Washington and what tax pros should be watching next. But I want to start with the 1099 question, because for a lot of practitioners, That's the first place crypto [00:02:00] tax is becoming real in our day to day client work. So can you tell me what is this form? What do accountants need to know about what it does and and what it doesn't do?

Lawrence Zlatkin: So what's new this year is the issuance of what's called a 1099 d a d a for digital assets. It's actually very similar or intended to be very similar to A 1099 B, which should be something that's native to most of your, your listening audience in that it's supposed to be the analog for crypto, for centralized [00:02:30] custodial exchanges to what Fidelity or ETrade do for their customers with stocks and securities. So it takes investments and it sort of puts them in a form. And the whole construct of the US information reporting system is based on the notion that this form goes to customers. It provides information to complete tax returns. It also goes to the government, and the government then uses it to match and audit whether taxpayers are actually complying with the tax laws. That's the fundamental purpose of this. So Das are new [00:03:00] for crypto, but there shouldn't be new just overall construct shouldn't be new for tax accountants or in fact, most taxpayers.

Blake Oliver: So one of the issues with 1099, the other kinds of 1099 is that what gets reported on the form isn't always what we actually report to the IRS. There's like a reconciliation that needs to happen. Is that similar here?

Lawrence Zlatkin: It's identical. Yes. And I like to tell people this is just simply a perspective, if you will, a window into what our taxpayers are doing. But it's [00:03:30] you should always keep track of books and records, your investments, how you've transacted. Ultimately, you have the best books and records. If the IRS questions you, then you just have the right to rebut their assumptions or to answer their questions. But fundamentally, you are in control of your tax data.

Blake Oliver: So what is the form include and and what is it not like? What's what's missing that we need to fill in?

Lawrence Zlatkin: So it's a little bit more of a skeletal version this year. Um, and that was very done intentionally. Maybe, [00:04:00] um, maybe we should have been more ambitious. I mean, bear in mind that we are implementing the system in barely 18 months after regulations have been issued, the trend ten nine B system was developed over a period of years, five years, and even longer for gross proceeds. So what we're doing this year is we're reporting customers who the customers are on our exchange and gross proceeds for transactions that occur on our exchange, while we're not including is basis, um, we're including bases for our customers for informational [00:04:30] purposes, but that information is not actually going to the government. So basis information is absent this year. And that's probably the biggest challenge I think, for digital assets generally, it's the whole issue of how you define gain or loss, whether you over report gains or losses. Um, you know, just basically accuracy. If you're missing cost basis, it's probably more pronounced for digital assets than I think for traditional stocks and securities and other investments for the simple reason that people do more things with crypto than they do elsewhere. And [00:05:00] there's I've been harping on this for a while. There's some degree of overreporting that occurs just by the nature of the industry and the ecosystem itself. So that's, that's can be overwhelming. It also can lead to, I think, potential errors and accuracies and may result in a letter from the IRS as to why you are not doing X or Y. But fundamentally, what's happening this year is the IRS is going to get a statement of our customers and basically gross proceeds from transactions.

Blake Oliver: Okay. So the, [00:05:30] the gross amount that I was sent in crypto gets reported to the government, but not my basis in that. Correct. Okay. Can you give me an example to help illustrate what basis means when it comes to crypto?

Lawrence Zlatkin: Basis is very similar. It's a it's a concept we use in tax and really in an investment parlance for determining your essentially your investment basis is basically what costs went into acquiring [00:06:00] the piece of property or whatever security you're actually holding. And that's sort of like your carrying cost, if you will, for what you own. And when you dispose of something, presumably, or hopefully you have an amount realized. Again, I'm using a technical jargon that amount realized in this case, it's a taxable transaction, which is why it gets into the calculus. And that presumably will be in fiat, for example, but it can be in other crypto. That amount realized lest your investment basis determines your gain or loss. So that's why it's really [00:06:30] fundamental to evaluate that because otherwise you're missing a really important link for. And again, the tax system is based on income. It's based on gain or loss. It's not based on gross proceeds.

Blake Oliver: Okay. So we have a reporting system where the gross proceeds are reported, but the tax is due on my realized gain. And that is not being reported. So let me let me make sure I have this right. I'm going to give you a transaction. So I have [00:07:00] $100 worth of Bitcoin. Or rather I sell Bitcoin and I receive 100 USD for it. The 100 USD, that's what gets reported to the IRS. But let's say I bought that amount of Bitcoin for $90. Originally I only have a gain of $10. That's where the tax is. The tax is computed on that amount. But the IRS doesn't get that information this year.

Lawrence Zlatkin: So next year we [00:07:30] will start reporting bases where we have it again. That's an important distinction that exists probably with the rest of Tradfi, because we don't always have basis information that could be true in Tradfi as well when people move things around. But, but it's, it's much more common in our industry because people are constantly moving. Not everyone, but if, if you're doing everything on Coinbase, we will report that to the government and that 90 in your example will go to the government as well. And therefore, that ten of gain that you just described will [00:08:00] go to the government and that will match. And if that's the simple thing that people do, and I encourage people to just use Coinbase, I think we're a wonderful platform. You can do. We're trying to become the everything exchange. So people should be doing as much as they can on Coinbase. But if you don't, if you move things around, if you move things to a non-custodial wallet, if you do other types of things, um, that, that 10th May not be captured and reported to the government.

Blake Oliver: And that will create then a discrepancy that will have to reconcile. I mean, how's the [00:08:30] IRS going to use this information? Like what's the utility of the gross receipts? If the tax is computed on the gain and they don't have that information, like what's what's the point of it?

Lawrence Zlatkin: So you're ahead of the curve in asking that question. Fundamentally, the government's concern has been that there's been underreporting and noncompliance in the ecosystem generally. So what this achieves from their standpoint is they find out who's really participating. So right now all they've essentially seen is you probably have noticed there's a question it's varied for [00:09:00] like the last five years. Um, it's kind of gobbledygook in general. Anyhow, just like whether you hold own or ever transacted in crypto. It's like right after your name and your address, basically. Um, so that's the only thing Iris has essentially had to go on as to whether people were transacting in crypto. Um, right now they will receive a form that basically also says, not only do we have like whoever answers that question, but rather we'll know what they've actually done. Will they have complete information to evaluate whether you're [00:09:30] reporting your income correctly? No, they won't, but at least they'll know who you are. And hopefully they'll use that data intelligently and they'll effectively discern who they want to audit. You know, there's a whole matching system with Chen89 in general. So if you mismatch, you typically get a love letter from the government as to why you've mismatched, but they'll also find out who whales are. They'll find out who transacted big Time on our exchange. And that will, again, from a risk standpoint, it reduces the level of risk of noncompliance.

Blake Oliver: Okay. So they'll they'll in other words, they'll probably use this information [00:10:00] to go after taxpayers who haven't been paying their taxes at all. And then those who may be seriously underreporting because they're whales, meaning that they have enormous sales.

Lawrence Zlatkin: They will have that ability to do that. So if there are millions of dollars of gross proceeds, they may be quite interested in finding out why. Now, there's nothing nefarious or awful or evil about that. It's just that they will have that information they didn't otherwise have before. Before they were just using risk [00:10:30] tools. They were using analytics. You know, there are other mechanisms to find this information, but they didn't have that before.

Blake Oliver: You mentioned this term non-custodial wallets. So if you move your funds, your crypto from a custodial wallet, that would be like a Coinbase to You a non-custodial wallet, then you lose the basis information.

Lawrence Zlatkin: Well, it's like it's like taking. I mean, this doesn't really happen in Tradfi. It's taking security off the exchange into some other tracking mechanism or investment, um, [00:11:00] wallet, if you will, where you hold that asset. So we have the only person who knows what's in a non-custodial wallet is you because you're the owner of the non-custodial wallet. That's in fact the, the benefit, one of the benefits of that and one of the attributes it has. So we don't have that information. So therefore, when it leaves our system, um, but it could also be a transfer to another custodial exchange. You could transfer it to some other exchange. Again, we, we don't have a mechanism for evaluating or determining what happens after it leaves. So therefore when it comes back, we don't [00:11:30] have that information to report to you or to the government.

Blake Oliver: Okay. So then the the easy way to prevent a mismatch or like the reporting being incorrect in future years is to just stick with an then exchange that tracks the cost basis and don't move it around between exchanges if you don't have to.

Lawrence Zlatkin: I would love for everyone. Again, I just described our everything exchange. You can do pretty much everything on Coinbase. We're safe and secure. We're. You know, I'm [00:12:00] it's a good advertisement for what we do. And yes, if you do everything on our platform, I'm just like today. Today it's not reportable on A 1099 Da. But we have always provided our customers with information about gain or loss, what their transactional history is, what they've acquired, how they've acquired it when they've acquired it, like the gain or loss can be calculated from that. We call it our position service that effectively sort of defines. And so again, that information is available to us because you transacted on our exchange. So that is the easiest [00:12:30] way to keep books and records and transfer that responsibility, if you will, over to Coinbase. We'll keep track of that for you. And in fact, that's something that we have advertised that we will do very well, at least try to make that experience as easy as possible.

Blake Oliver: Okay, let's move on from talking about reporting to taxation of crypto. We're filing our returns for our clients. Crypto taxation. Explain it to me like I'm five. How is crypto [00:13:00] tax today?

Lawrence Zlatkin: So I think you gave a good example of a very typical crypto transaction. So going back to basics, I mean we actually don't have a whole lot of lore on how crypto is treated for tax purposes. All the IRS has essentially told us since 2014, and it's consistent with its view today, is that crypto is property. So and it's not defined as a security or a commodity. There will be tokenized securities. There will be commodities [00:13:30] that exist that consist of crypto. But those are those are more specialized cases, if you will. Um, we call it tokenization of real world assets, but fundamentally crypto is just property. So when you own property, You have an investment basis in it. And when you sell it, then you essentially for other crypto or for fiat, like for US dollars or another currency, that fair market value is a trend is essentially determines how much gain or loss you have. And your Bitcoin example is a good, good [00:14:00] example of how that actually works. There are other aspects of our ecosystem where we've actually reported information as well. So you might have heard of staking. So there's a validation mechanism that exists to um, so to validate and confirm on the blockchain to give people the ability to confirm on the blockchain various transactions for stackable assets.

Lawrence Zlatkin: So Ethereum is a good example. Solana. So you might receive rewards. We call them rewards, um, for validating and staking. [00:14:30] Um, and you could be passive. You can do that through staking validator. We offer staking validation services and but cut and dried. Um, the long and short of it is you receive staking rewards and those rewards are taxable. There's some debate as to when they become taxable, but the IRS at least believes that it's taxable upon receipt. So we report that information to our customers on a different 1099. It's called a 1099 misc. That's a traditional [00:15:00] form you receive for when you receive miscellaneous income of over $600. So that information already exists. You might receive that on Coinbase. We'll track it for you if you have staking rewards. We also encourage people to hold Usdc. It's a stablecoin on our platform, and we provide rewards for holding stablecoins. It can be quite substantial. Again, if you receive more than $600 worth in any given year, it goes on a separate form called a misc. And that's you would have received that in prior years as well. So and that also is an [00:15:30] important transaction that may occur on our in the ecosystem. And that's also part of our whole tax system as well.

Blake Oliver: So what I'm hearing is the IRS treats all crypto as property, but we have crypto that we don't use as property. Stablecoins are a great example. In practice, we use them like currency, but the IRS treats it like property.

Lawrence Zlatkin: So you got it.

Blake Oliver: Why? Why doesn't like [00:16:00] why do why do they do that? And what what is the limitation of this? Or is it just something that we overcome? And it just creates a lot of complexity in, in calculating the taxes and the.

Lawrence Zlatkin: You've touched on a fairly sensitive part of crypto and the ecosystem itself. So yes, stablecoins, as I said, everything is essentially treated as property. And there are again, edge cases. You can do futures, you can do various other, you know, there are other things that you might do [00:16:30] that might fit into the more derivative space and the more exotic types of exchanges. We'll leave that aside for a minute, but long and short, it's property. Stablecoins are property. They're not treated as cash as they are. So for accounting purposes, even under the Genius Act and as clarified, it's generally treated as near cash or cash equivalent. It's not there is no concept of that for tax purposes. The only currency that exists is essentially US dollars or other governmental fiat currencies that are called foreign currencies. And [00:17:00] there's a whole section of tax code provisions associated with that. It's not treated as that at all. So it's treated as property. Um, and that is a sensitive subject because, um, without going into the, the, just the details and just the weeds of why and how and what type of property represents, whether it's a security or whether it's a demand note or whether whatever it might be, it's just basically treated as property. So it becomes reportable, um, as a disposition of property, just like anything else. So if you use, um, stablecoins [00:17:30] like Usdc or tether in a transaction and you do something else with it and you dispose of it, that's reportable on your tax return today, no differently than if you sold any other form of property. Now, there is a threshold of $10,000 that the IRS has given exchanges like ours to report that to the government. So if you dispose of less than $10,000 on Coinbase, we won't report that to the government itself.

Lawrence Zlatkin: You [00:18:00] are still, as a taxpayer, required to report it to the government. So I'm not going to tell you you're exempted from the requirement, but we won't report it over $10,000. We have like hundreds of thousands of people who have or are going to be receiving 1099 this year. That includes stablecoin transactions that exceed the $10,000 threshold. Now, why is that a sensitive subject, at least for me as well. I've been harping on this, is that stablecoins are designed to be stable and consistent and traded at par with the US dollar. Yes, there have been examples where there have been deep pegging. I'm not going to go into Luna and other extreme [00:18:30] cases, but even Usdc has pegged for a period of time during like the Silicon Valley bank crisis, but 99.9% of the time it's intended to trade within a fraction, a decimal of the US dollar. So in essence, we're not reporting a gain or loss. So it's over reporting of data. There's no fundamental purpose for that. I would just argue that the only reason for that is surveillance. Like there is no need for that type of information. And yet we [00:19:00] still can't treat it differently. So we've been arguing quite strenuously for exempting stablecoins from reporting. If they did, Peg, we can bring them back into the system because then you might have people arbitraging. But until that happens, or only when that happens, stablecoins should be exempted from reporting. And in your example, where it's like near cash, it's just like using cash in your wallet or cash in an exchange. There's no gain or loss, no reporting.

Blake Oliver: Stablecoins are just exploding from my point of view. I mean, it seems [00:19:30] like more and more companies are starting to use them. At earmark, we use Usdc to pay some of our vendors. And so what you're telling me is that because the IRS treats Usdc as property, I have to report every transaction to the IRS.

Lawrence Zlatkin: Correct?

Blake Oliver: And I'm just like, that would be as if the IRS got every bank transaction, like in fiat currency too. [00:20:00] Like we were reporting all that to them. Like, I feel like Americans would never stand for that. We'd call that like surveillance and overreach. And yet we have this situation where every stablecoin transaction gets reported.

Lawrence Zlatkin: Well, without going down too much of a rabbit hole there, I would just remind everyone that there were proposals to actually no less than five years ago in the Treasury Department to include transactional reporting on your credit card statements.

Blake Oliver: So wow, really.

Lawrence Zlatkin: Thanks were required. This was in what's called the Green Book, which was a budget proposal [00:20:30] from the white House. And there was an attempt that was quashed for the reasons, hopefully, that you just described. To report credit card transactions to the government. And I think there was a threshold there also $10,000. So transactions on your credit card, over $10,000, not each one over $10,000, but yet once you exceeded $10,000 in the aggregate, the assumption would be that you report it. So there is history for doing this. I agree with you. Like I don't there's for the for taxing. If if we as a society decide that we want to surveil people [00:21:00] like, you know, I, we live in a democratic society, people can decide they want to do that, but for I'm a tax person. So from a tax standpoint, there is no utility in reporting those transactions because there is no gain or loss.

Blake Oliver: Yeah. It doesn't. I mean, it kind of I hadn't really thought about this, right? We just started using stablecoins at earmark because it's better for certain transactions, right? International payments, that sort of thing. It's fantastic.

Lawrence Zlatkin: It's fabulous. Absolutely. It's like the, the, the, there's [00:21:30] such enormous potential for stablecoins generally to take off and to be used, they're efficient. They're transactional. You know, they're frictionless for all the reasons you just described an email, you send it, you're done. Yeah, absolutely. Totally agree.

Blake Oliver: But now I'm a little hesitant knowing that I'm going to have to report every transaction to the IRS. I don't I don't really like that.

Lawrence Zlatkin: Um, well, I, I hope ultimately we will get this clarified and hopefully we'll get that goes into the discussion over what's happening in Washington. [00:22:00] We have strongly advocated we have, I think, a sympathetic ear. If we can get tax legislation, hopefully we can get that clarified. Um, I would also note, just in terms of potential exposure, I'm not telling you what you should or should not do. It's reportable as a transaction. The tech system, as I said, is based on income. It's based on gain or loss. If there's no taxable income, then there's no penalty. In essence, because you have an underpaid taxes on zero because you have no gain or loss. So just in terms of your exposure, it's rather limited and attenuated. So [00:22:30] but it is a disposition of property. It is reportable. And as I said, we as an exchange have to track it and we report all transactions in the aggregate over $10,000. We report that to our customers and to the government.

Blake Oliver: Okay. So treatment of stablecoins is definitely one of the agenda items in Washington that you're focused on. What other tax policy issues related to crypto are you and Coinbase focused on?

Lawrence Zlatkin: Uh, we have quite a few that are native to, let's say, crypto, the ecosystem [00:23:00] and, and probably more institutionally related or related to foreign investment in the US. I mean, I can go into more detail if you want. People do crypto lending. Lending transactions are very similar to securities lending. There's a code provision for that. So we argue that crypto lending does not result in a taxable gain or loss. You're not disposing of crypto because you're going to get exactly the same amount back again within certain parameters. That's really important to our customers. So we spend a lot of time on that. Um, we [00:23:30] also the whole staking income debate is a source of enormous friction because some people believe that staking rewards shouldn't be taxable until they're actually monetized. So when you actually sell the crypto rewards, that's when you're taxed, not when you receive them. That's, as I said, a source of friction and debate. The other one that's probably most relevant to your customers in sort of adjacent to what we just talked about is what I call the de minimis rule, which is which is again, much more common in our ecosystem than elsewhere. And by that [00:24:00] I mean that you have a certain number of transactions that are tiny, often in amount and yet become taxable transactions that are reportable. So gas fees are a good example in our in our industry. So people often incur network fees or transaction fees to do things on crypto. And that might involve disposing of like a dollar's worth or a penny is worth of Ethereum, for example, which is an often used token for transaction network fees. [00:24:30] That's the disposition of property. So again, it's reportable by us to our customers and it's reportable by our customers to the IRS.

Lawrence Zlatkin: And there may genuinely be gain or loss associated with that. So again it could be $0.50 but there's gain or loss. And I guess the the question and this is again a source of debate because certain sectors of the government think, well, crypto bros are in this income. This is like, that's what they do. They should be taxable. We're not going to give away any, you know, candy to them that it's exempt [00:25:00] from reporting, um, or exempt from taxation. But I'm talking about like potentially tiny transactions. So an open question is, should we have a de minimis rule below which transactions either become exempt from reporting or exempt from taxation? And what should that threshold be? Should it be just like every other thing in our tax world? Should it be income based so that people below a certain income are the only people who can enjoy that benefit? Or should it be transaction dollar [00:25:30] based? It should be a limit on it should be 50 bucks. Should it be 200 bucks? Should it be 600 bucks in the aggregate for the year? Should you therefore track it? And my only argument is that we're not going to pave roads and solve the deficit on the backs of de minimis reporting for crypto. Um, so it might be policy wise, I might agree it's income. I'm not going to tell you it's not taxable and therefore it shouldn't be taxable and shouldn't be reportable. But there's just a level. It's the administrability debate. Like at what point do we stop requiring [00:26:00] reporting for transactions? I don't think if the IRS gets bombarded with, you know, ultimately billions of transactions that are tiny in nature because people are required to report them. The system itself breaks. Yeah, I.

Blake Oliver: I can't, I imagine their computer system would break given how ancient it is.

Lawrence Zlatkin: Yeah. And we, I, I'm not that's not just like a theoretical construct. Like we actually are there are billions of transactions that are being reported today. So because of the nature [00:26:30] of crypto, I call it democratization of finance. We we provide crypto to more people that otherwise wouldn't have, let's say, owned stocks and securities. More people engage in these transactions. There are many more of them. People do more things with them. It's like taking a lot of our the financial sector and expanding it into a broader swath of territory. And so you just have many, many more transactions. And if they're tiny in nature, I just think like, as I said, I just don't think that it's sensible to tax [00:27:00] that. So I just think and that might be a dead giveaway. I mean, I wouldn't even necessarily disagree with that, but if you're giving away non-taxation we have let me step back. We have thresholds in our income tax system already below which people don't pay tax. Maybe they're required to report it, but they're not necessarily taxed on it. So like if you make below the standard deduction, for example, you don't pay income tax. Um, and I know there are variations in all this, and we could probably go down a rabbit hole in terms of how those are defined. I'm just saying [00:27:30] from the standpoint of administrability a transaction of less. And I, as I said, I'm talking about transactions sometimes that are $0.50. I'm not talking about like I use 50 bucks as an example.

Lawrence Zlatkin: I choose five bucks. I don't know what it is like. We are now filing millions of 1099 to our customers, and probably about half of them are fit. That definition of de minimis. So think about it. And so millions of Das, but hundreds of millions of transactions [00:28:00] because those Das include lots of underlying transactional flows that get reported on what's called an 8949, which is like the transactions that get reported to the government that feed into the capital gain or loss. So again, we're talking about hundreds of millions of transactions that fit the bill of de minimis that I just described. So that, to me is an important area. And I spend a lot of time on that and trying to get that exempted, or at least. Rationalized [00:28:30] in terms of how it applies. But there are other aspects as well that are quite important. So charitable deductions is a good example. So if you give Bitcoin or Ethereum, which is traded on a variety of different, you can go and get a Bitcoin price instantly on it. You can type it in Google and you'll get a Bitcoin price, just like you get the price of any stock or security. But because it's property, it has to be appraised. If you give more than $5,000, I think $5,000 is the threshold for charitable contributions. So we've argued that that's kind of ridiculous. [00:29:00] Like, why are you making me go and get an appraisal for.

Lawrence Zlatkin: And that's the system as it works today. It's like if you give a piece of art or something that has, you know, where the value is open to discussion, you get an appraisal and then that appraisal supports your deduction. You should, but it exempts certain transactions where there's a readily, what we call readily ascertainable fair market value. Crypto, by and large, has readily ascertainable fair market value. Go on our exchange, we have hundreds of assets. They are traded on [00:29:30] a regular basis and so that shouldn't be reported. You know they shouldn't require an appraisal for that as well. So there's that area. But I could go on there. Like probably we have, uh, I go to Washington. We probably argue when we have time in the room for about ten. I have a list. I'm happy to send it to you. Of our highest priorities have sort of identified those, but there are others as well. Some of them are more in the nature of trying to encourage investment management in the country, in this country, because we have rules that try to encourage that crypto is not really includable [00:30:00] in that. So we try to encourage that as well, just things that attract foreigners into the US tech system in the belief that that way we can attract capital. We're the best and safest market in the world. So we'd like to preserve that for crypto, not just for regular old investment assets.

Blake Oliver: Tell me more about that one. I'm interested to know about about the investment management.

Lawrence Zlatkin: Oh, well. So we have rules in this country, for example, that allow non-US people to trade, um, through brokers and to trade actively on US [00:30:30] exchanges without triggering what we call a US trade or business so that they're not taxable on those transactions in the United States. And we have a safe harbor embedded in the Internal Revenue Code that allows you to choose either to do that yourself or to trade through an investment manager or an investment advisor in the US. And even though you're using a US person, it's being transacted, let's say, out of New York or Chicago or wherever it might be. Um, you're not subject to tax on that. Um, we don't have analog that for crypto. So [00:31:00] the only analog would be to say that they're securities. It applies to what's called securities. It's called the securities and commodities exception. Um, so we think that we should have an analog for that for crypto as well because there's no difference for crypto. Um, so again, you know, something that we think just encourages, um, investment in the United States. Staking is another good example, so I, I. Earlier we talked about staking and staking rewards. You can use a validation service. So staking again involves going into the blockchain [00:31:30] and staking assets. You can do that yourself. But most people, particularly passive investors, would most likely go to Coinbase or another validator. So the open let's assume you're a non US person and you receive staking rewards. We have a withholding tax regime applicable to fees or rewards that are payable. And so the question is are those foreigners subject to US tax on that. They're not going to use US validators if they think they're going to be subject to US tax. And we have lots of exemptions built [00:32:00] into our system to encourage that type of activity. So we've argued again that this should also be similarly treated to encourage that investment, so that we don't get into a debate as to whether those are subject to US tax or not.

Blake Oliver: So these seem like a lot of common sense regulations or or laws.

Lawrence Zlatkin: Totally. I say that all the time.

Blake Oliver: And, and I thought that when the Trump administration came in, given that Donald Trump is very friendly to crypto, and I remember he went and gave a big [00:32:30] speech when he was a candidate, I think, to like some crypto convention, I figured that we would see legislation. Uh, and so far, we really haven't seen much other than the genius act, I think. Is that the only only one so far. Correct. What what is the hold up on this? Like, why hasn't Congress moved to adopt some of these? What seem like common sense regulations?

Lawrence Zlatkin: Um, well, I will say I'm cautiously optimistic that we will see something [00:33:00] both on regulation for crypto, which defines how crypto is treated and who gets to regulate it. Whether it's the CFTC, the SEC, and overall, um, areas of just standard regulation, which my legal colleagues and my other colleagues deal with on a regular basis. There's something under discussion you might have read about called the Clarity Act. So it's also under intense discussion right now. So the president has been very supportive and in fact met with our CEO Brian Armstrong, last week, I believe, [00:33:30] and was quite optimistic and encouraging passage of legislation in Congress. On the tax front, I'm also cautiously optimistic. But the holdup, if you want to call it that, is really just how Congress works, how our legislative process works. There are two parties in in government. Um, the House is very narrowly controlled by Republicans. Um, and this should not be a debate, I think a partizan debate. [00:34:00] I think this is an ecosystem that benefits both Democrats and Republicans. We argue that it should be bipartisan in nature. I certainly think tax policy for crypto is should very much like the things we talked about shouldn't be partizan in nature at all. It has become a little bit more partizan than it should. And so, um, without going into more detail, that just creates friction and stickiness into the system. And then there's just the whole, you know, I don't have to tell you, Washington is its own unique [00:34:30] beast. And so things don't move as quickly as you might like. Um, in Washington. Um, but you're right. The president thankfully issued a report last year. Um, it's a white House report on digital assets and included a number of tax provisions. The Treasury Department has, by and large been very supportive. Um, so, um, we're enthusiastic and optimistic, but, um, but, uh, we haven't seen anything yet.

Blake Oliver: I've been speaking with Lawrence Zlatkin, vice president of tax at Coinbase. [00:35:00] Lawrence, thank you so much for your time today. I learned a lot.

Lawrence Zlatkin: My pleasure. Always.