Coinbase’s legal head warns that IRS cryptocurrency tax reporting regulations pose a risk to the sector.

Paul Grewal, the chief legal officer of Coinbase, has called upon the cryptocurrency community to unite against the proposed tax reporting regulations on cryptocurrencies put forth by the United States Treasury. Grewal emphasized the need for the community to resist these proposed regulations, as they could establish a troubling precedent for surveillance.

Grewal took to X (formerly Twitter) to express his concerns regarding the proposed crypto tax reporting guidelines, asserting that they exceed the congressional directive to create tax reporting standards. He further stated that if these regulations are enacted, they would disadvantage “digital assets and pose a threat to a burgeoning industry at its inception.”

Anyone who values fairness and champions American innovation should voice their opinion on the Treasury’s proposed regulations for the tax reporting of digital assets. You can join @StandwithCrypto’s opposition to the rulemaking here. 1/4 https://t.co/4eALt1Frxo

— paulgrewal.eth (@iampaulgrewal) October 18, 2023

The U.S. Internal Revenue Service (IRS) published a draft of proposed regulations for crypto tax reporting on August 25. According to the proposed guidelines, crypto brokers would be mandated to utilize a new form to facilitate tax filing and reduce tax evasion. The regulations encompass centralized and decentralized exchanges, crypto payment processors, specific online wallets, and crypto brokers.

The Treasury Department asserted that the new form would streamline the tax filing process, aiding taxpayers in determining their tax obligations without needing to engage in complex calculations or hire digital asset tax preparation services for their returns. If approved, the new tax framework will take effect in 2026, with brokers required to report transactions from 2025 starting in January 2026 via Form 1099-DA. However, numerous U.S. lawmakers have urged the IRS to implement crypto tax reporting requirements prior to 2026.

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The Treasury Department contended that the crypto tax reporting regulations would align digital assets with conventional financial reporting; however, Coinbase’s legal officer argues otherwise. In his post on X, Grewal highlighted that the proposed rules would create a “dangerous precedent for the surveillance of consumers’ everyday financial activities by mandating that nearly every digital asset transaction – even the purchase of a cup of coffee – be reported.”

Grewal pointed out that the proposed regulations would necessitate the collection of extensive user data that lacks any “legitimate public purpose.” He remarked that this data collection would impose a heavy burden on Web3 startups with expensive requirements while providing the “IRS with more data than they can process and analyze.”

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