Why would Coinbase issue 1099s? And on what basis? Keep in mind it holds custodian funds in a wallet service, like a bank account. If I deposit 1 BTC when it is worth $5,000, does Coinbase report that as $5,000 of income on my 1099? I hope not! What if I withdraw that same 1 BTC when it is worth $16,500, should Coinbase tell the IRS I made $11,500 in gains? But I didn't sell anything! I just moved something I already owned from one place to another. That's not a taxable event.

If I use my bank to transfer you money, the bank isn't responsible for filing a 1099 to report that income to you; I am. Using coinbase to transfer funds to you should be handled the same, and Coinbase is a wallet and merchant service as much as it is an exchange.

Now selling coins is always a taxable event. But when properly using an exchange, the coins should not be kept "on account." So ideally, every bitcoin sold was transferred into Coinbase/GDAX prior to the sale. How does Coinbase know the cost basis to report? It doesn't. Not unless that information is freely provided by the user, in which case it is fully unverifiable and the user would be free to put whatever the heck they want. Should Coinbase be required to file 100% self-reported tax information from its users without any way to verify the authenticity of that reported cost basis and time held?