The Internal Revenue Service is rolling out Form 1099-DA this tax season, requiring cryptocurrency brokers to report gross proceeds from digital-asset transactions during 2025 - but not cost basis.
The gap between what exchanges are required to disclose and what the IRS needs to calculate a gain or loss falls squarely on the taxpayer, creating the conditions for mismatches, automated compliance letters, and manual bookkeeping headaches at scale.
The new reporting system applies to custodial brokers including Coinbase and Kraken, which must now send 1099-DA forms to both customers and the IRS documenting 2025 transactions.
The Core Problem
If an exchange reports that a customer sold bitcoin for $100,000, the IRS receives that figure but not what the customer originally paid. The taxpayer must separately establish cost basis on Form 8949 to calculate whether a taxable gain or loss occurred.
"This year is likely to be confusing for many investors because Form 1099-DA reports gross proceeds from transactions, but cost basis information is not provided to the IRS until the 2026 tax year," Lawrence Zlatkin, vice president of tax at Coinbase, told The Block.
Investors who moved assets between multiple wallets and exchanges face a compounded challenge. Transfers disrupt the cost-basis trail that brokers use to match purchases to sales.
Staking rewards, network fees, and DeFi transactions are all separately reportable, even in small amounts, according to Zlatkin.
Enforcement Risk
Tax experts interviewed by The Block were divided on near-term IRS enforcement. Miles Fuller, senior director of government solutions at Taxbit and a former 15-year IRS employee, said the agency will likely process 2025 data slowly.
Gross proceeds on 1099-DA forms are aggregated with traditional securities proceeds rather than matched transaction-by-transaction, limiting immediate detection.
Zlatkin said discrepancies between 1099-DA forms and tax returns will trigger automated letters regardless. CoinTracker head of tax strategy Shehan Chandrasekera said enforcement timing is unclear but will occur when the IRS cannot reconcile discrepancies.
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What Changes in 2026
Brokers will begin reporting both proceeds and cost basis for assets acquired in brokerage accounts on or after Jan. 1, 2026 - the IRS's "covered" asset threshold.
Investors who buy and sell on a single platform will then face reporting requirements comparable to a standard brokerage account.
Those using decentralized protocols or transferring between platforms will retain additional reconciliation duties.
Fuller said some U.S. traders may move toward offshore exchanges or DeFi in response to expanded reporting, but cautioned that equivalent frameworks are advancing globally.
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