There is zero chance that the IRS will stop there. Especially as bitcoin becomes more widespread, Coinbase becomes even larger, and the price continues to increase, the IRS are going to keep knocking at Coinbase's door (and that of other exchanges), and keep pushing harder and harder for the details of more and more customers. As more governments continue to pass more laws and regulations regarding bitcoin, trading, taxation, and so forth, it is only a matter of time before Coinbase (and all centralized exchanges) hand over the details of all their customers to the relevant governments, or are forced to shutdown. And as we've seen time and time again, exchanges are all too happy to sell out their customers if it protects their profits.

Absolutely not. You should never feel comfortable giving out your KYC documents. The risk is enormous, and the benefit, in this case, is merely convenience. Everything you can buy on Coinbase you can buy on a peer to peer exchange such as BISQ or localcryptos. It might take a bit longer and it might be a bit more work to set up the trade, but that is a very small price to pay for the benefit of not having to trust an unknown number of third parties with your details, and not having to trust an unknown number of third parties with control of your coins.