Coinbase’s Chief Legal Officer, Paul Singh Grewal, has issued a rallying call to the cryptocurrency community, urging them to unite against the United States Treasury’s proposed tax reporting regulations on cryptocurrencies. Grewal expressed deep concerns about the implications of these regulations, warning that they could establish a concerning precedent for surveillance.
Using X (formerly Twitter) as his platform, Grewal addressed the potential pitfalls of the proposed crypto tax reporting rules, emphasizing that they extend beyond the initial congressional mandate to establish tax reporting guidelines. He stressed that if these regulations were to become law, they would place digital assets in a vulnerable position, posing a threat to an emerging industry still in its infancy.
The Internal Revenue Service (IRS) unveiled a draft of the proposed regulations for reporting crypto taxes on August 25. These rules would necessitate the use of a new form by crypto brokers to streamline the tax-filing process and combat tax evasion. The proposed regulations encompass both centralized and certain decentralized exchanges, crypto payment processors, and specific online wallets categorized as crypto brokers.
The Treasury Department asserts that this new form would simplify tax filing for individuals by helping them determine their tax obligations without resorting to intricate calculations or third-party digital asset tax preparation services. If approved, this revamped tax system is slated to take effect in 2026, with brokers mandated to commence reporting transactions from January 2026, using Form 1099-DA. However, a chorus of U.S. lawmakers has urged the IRS to expedite the implementation of crypto tax reporting requirements before 2026.
Despite the Treasury Department’s argument that these crypto tax reporting rules align digital assets with traditional financial reporting, Coinbase’s Chief Legal Officer contends otherwise. In his X post, Grewal highlighted that the proposed rules set a worrisome precedent by subjecting nearly every digital asset transaction, even as trivial as purchasing a cup of coffee, to mandatory reporting, thus paving the way for widespread financial surveillance.
Grewal pointed out that these regulations would necessitate the collection of a substantial volume of user data, devoid of any legitimate public purpose. This data collection, he noted, would impose a burdensome and costly requirement on Web3 startups while inundating the IRS with an overwhelming quantity of data that they may struggle to process and analyze.