Just-In: Coinbase CLO Challenges IRS Digital Asset Tax Reporting

In a series of tweets today, Coinbase Chief Legal Officer Paul Grewal called on those who care about fairness and support American innovation to oppose the Treasury’s proposed regulations for tax reporting on digital assets.

“At their core, the proposed regs go well beyond the congressional mandate to establish tax reporting rules on par with those for traditional finance, putting digital assets at a disadvantage and threatening to harm a nascent industry when it’s just getting started,” Grewal tweeted.

Regulatory Overreach Concerns

Grewal’s concerns revolve around the proposed regulations, which he believes exceed the mandate given by Congress to create tax reporting rules equivalent to those of traditional financial systems. He argued that these regulations could potentially hinder the growth of the digital asset industry, which is still in its early stages.

The propose rules, according to Grewal, threaten to introduce a level of surveillance into the financial activities of ordinary citizens such as “the purchase of a cup of coffee”. Such intrusive reporting requirements could undermine privacy rights and potentially harm the digital asset industry’s development.

Grewal’s critique extended further, highlighting the burden that these rules could impose on both startups and the IRS itself. His concern is that the proposed regulations might overwhelm Web3 startups with compliance costs, stifling innovation and growth in the sector.

“Collection of such data has no legitimate public purpose and threatens to overburden Web3 startups with costly requirements and the IRS with more data than they can ingest and analyze,” he warned.

Crypto Industry Pushes Back

Grewal’s public opposition to the IRS’s proposed regulations is part of a broader pushback within the cryptocurrency industry against what is seen as overreaching government control. Coinbase and various industry stakeholders have consistently voiced concerns about the impact of these rules on privacy, innovation, and the overall growth of the cryptocurrency sector.

Just last week, Coinbase sounded the alarm on the IRS’s crypto tax proposal, describing it as “incomprehensible.” The exchange contended that the proposed rules would place an undue burden on the industry while raising significant concerns about privacy and surveillance.

That said, the IRS, however, is looking to tighten its grip on cryptocurrency tax enforcement, especially in response to a growing “tax gap” caused by noncompliance in the digital asset space. Notably, the rules stipulate that reporting is set to initiate in January 2026 for transactions conducted in 2025.