Paul Grewal, Coinbase’s chief legal officer, has raised alarm over the IRS’ latest draft regulations for crypto tax reporting. The Internal Revenue Service [IRS] has recently proposed draft regulations for crypto tax reporting, sparking significant concerns within the cryptocurrency community. The new guidelines, introduced on August 25, aim to simplify tax filing and curb tax evasion by introducing a separate form specifically for crypto brokers. According to the Treasury Department, this move intends to make tax calculations more straightforward for taxpayers, eliminating the need for complex computations or expensive digital asset tax preparation services.
However, Coinbase’s legal expert has expressed deep reservations about these regulations. Grewal believes that the IRS’ intentions might go beyond mere tax enforcement, potentially leading to unwarranted surveillance of users’ financial activities. He took to his official X account to voice his concerns, stating that the proposed rules could establish a “dangerous precedent for surveillance” by necessitating the reporting of every digital asset transaction, even minor ones like buying a cup of coffee.
Grewal called upon the crypto community to unite against the IRS’ proposed regulations, asserting that these rules surpass the congressional mandate, putting digital assets in an unfavorable position and jeopardizing a burgeoning industry. He emphasized that the regulations would necessitate the collection of extensive user data, which serves no “legitimate public purpose.” In his view, this data collection would overburden Web3 startups with costly requirements, flooding the IRS with more data than they can effectively process.
Coinbase: The Privacy Concern
The proposed regulations specifically target crypto brokers, encompassing both centralized and certain decentralized exchanges, crypto payment processors, and specific online wallets. If approved, these regulations will come into effect in 2026, requiring brokers to report transactions from 2025 through Form 1099-DA starting January 2026. However, numerous U.S. lawmakers have urged the IRS to expedite the implementation of crypto tax reporting requirements before 2026.
The controversy surrounding these regulations highlights the delicate balance between tax enforcement and individual privacy, raising significant questions about the future of crypto taxation in the United States. As the crypto community led by Coinbase debates the pros and cons, the outcome will significantly impact the evolving landscape of digital assets and their integration into mainstream financial systems.