Concerns about cryptocurrency taxation are increasing as the IRS monitors digital asset transactions, requiring individuals to verify their purchase prices.

At 7:12 a.m. on an ordinary Tuesday in February, an email arrives with a subject line that seems innocuous: “Your tax forms are ready.”

For Maya, a part-time designer who purchased a small amount of Bitcoin during the 2021 surge and subsequently sold portions across various apps when expenses increased, it appears to be a standard administrative task.

Click, download, complete, and return to work. However, the attachment reveals a different narrative.

This tax season marks the first instance for many regular crypto users to encounter a standardized form designed for digital assets, appearing alongside the usual tax documents.

Maya opens it, anticipating the one figure that matters: her purchase price, her selling price, and her tax liability.

She finds only one of those figures.

The initial rollout of the 1099-DA heavily emphasizes proceeds from 2025 transactions, while the crucial cost basis is absent.

For transactions in 2025, brokers are required to report gross proceeds on the 1099-DA, with basis reporting typically remaining outside the mandatory requirements until the subsequent phase.

The form can inform the government, and you, of what you sold for. However, it may leave the “what you paid” section for you to reconstruct from your own records.

This gap encapsulates the human experience, as individuals like Maya approach crypto investments similarly to other types. They purchase on one exchange, transfer coins into self-custody, bridge tokens, swap them around, and then sell elsewhere when rent is due.

The documentation reflects the exit. The actual trading activity resides in between.

Taxable activity must still be reported regardless of whether a broker provides a form, and you must calculate basis using your own documentation.

In a landscape where tax software encourages users to import forms and submit them, this instruction becomes a point of pressure.

This is particularly challenging for anyone whose cost basis is spread across multiple wallets and platforms.

This pressure manifests as confusion, and at times, overpayment.

Some tax professionals have cautioned that missing basis can exaggerate the gains reported when individuals consider an import as complete, a topic that MarketWatch has emphasized.

The frustration is understandable. A broker can transmit proceeds at scale.

The complicated part, the receipts, remains with the taxpayer.

The form arrives, the math follows

Form 1099-DA is the IRS’s new channel for digital asset broker reporting, and 2025 is the inaugural year for many brokers to engage with it.

The IRS presents it as a method to assist taxpayers and the agency in tracking digital asset sales and exchanges, with the system established through final regulations and related IRS guidance.

The timeline influences everything.

For transactions in 2025, brokers typically report gross proceeds, and the basis field often remains blank because the broker lacks a verifiable cost history, especially following transfers.

The IRS instructions delineate the covered versus noncovered framework and clarify how brokers manage basis fields when it is unknown or not required.

Basis reporting becomes more concrete with sales occurring on or after January 1, 2026.

This applies most straightforwardly when an asset is acquired after 2025 and remains in the same custodial account until sold, according to the instructions.

Two individuals can sell the same token at the same price, yet one receives a clear basis number while the other has an empty box.

One individual remained in place, while the other transferred coins around.

This detail transforms a tax form into behavior-influencing infrastructure.

A system that favors a single custodial route makes “stay on platform” the easiest path for paperwork.

Self-custody kept the freedom, and it scattered the receipts

Ask ten crypto users how they tracked cost basis over the past few years, and you will receive ten variations of “I intended to.”

Maya’s experience is typical.

She dollar-cost averaged ETH on Exchange A, withdrew to a wallet during the “not your keys” movement, swapped into a token on a decentralized application, and later deposited back to Exchange B to sell.

Exchange B can observe the sale and report the proceeds.

However, Exchange B often lacks the complete purchase history necessary for basis reporting, which is why the IRS framework relies on covered versus noncovered concepts in the 1099-DA instructions.

This creates a series of common “how did we get here” narratives that evolve into tax-time conundrums.

A transfer-in sale: purchase on one platform, move to a wallet, deposit elsewhere, sell.

The broker notes the exit, while your earlier journey remains outside its records, a scenario embedded in the framework outlined in the instructions.

Cost basis complexities: multiple purchases across platforms, partial lot sales, wrapped versions of the same asset, followed by a clean sale at the end.

This pattern yields clear proceeds and complicated basis, the kind of risk highlighted by MarketWatch.

Wallet-by-wallet transitions: individuals who tracked everything as a single large pool had to adjust to the IRS’s shift toward wallet- and account-level basis tracking.

The IRS established a safe harbor for reallocating unused basis as of January 1, 2025, detailed in Rev. Proc. 2024-28. This safe harbor is significant as it indicates how the IRS envisions the future landscape.

Basis linked to specific wallets and accounts is more traceable and defensible.

Crypto culture promoted movement. Documentation prefers containment.

The mismatch letter fear, and the quieter overpayment risk

A significant number of individuals will file and never receive a concerning letter.

The anxiety is prevalent because the IRS already conducts automated document matching, and information returns enhance that process.

When the IRS identifies a discrepancy between information returns and a tax return, it can issue a CP2000 notice.

The agency outlines the process and response timeline in Topic 652, including a typical response deadline of 30 days, with 60 days for taxpayers located outside the U.S.

With the addition of 1099-DA to this environment, proceeds become more apparent.

Omissions are easier to detect, and discrepancies are simpler to flag.

The system gains more mechanisms to identify when something does not align.

The quieter risk is overpayment.

Here is the math in straightforward terms.

If a taxpayer sells for $50,000 and their actual basis is $40,000, the genuine gain is $10,000.

If the $40,000 basis never enters the filing process, the reported gain can inflate to $50,000.

The IRS consistently emphasizes the responsibility in its guidance: taxpayers must calculate basis before filing.

Timing adds urgency.

The IRS opened the 2026 filing season for 2025 returns on January 26, 2026, meaning individuals are filing as these forms begin to arrive.

The winter updates that hint at scale, and the direction of travel

Two recent updates clarify the situation.

First, the IRS released corrections to the 2025 1099-DA instructions that elucidate de minimis and optional aggregate reporting methods.

Brokers report certain PDAP sales only when aggregate sales exceed $600, and the IRS specifies optional aggregate reporting thresholds for stablecoins at $10,000 and designated NFTs at $600, according to the IRS corrections.

Second, the IRS excluded 1099-DA from the Combined Federal State Filing Program for the tax year 2025.

This indicates uneven state-level matching and rollout pace in the initial year, as noted in the IRS announcement.

There is also the reality of year one on the broker side.

The IRS provided penalty relief related to good-faith efforts for 2025 reporting, outlined in Notice 2024-56.

This sets expectations for imperfect data as the system comes online, and it suggests a stricter enforcement approach in the future.

At the periphery, IRS guidance also lists temporary exceptions or relief for specific transaction types.

These include wrapping and unwrapping, liquidity provider transactions, staking, lending activities, short sales, and notional principal contracts, according to Notice 2024-57.

This list is important for accuracy, as many economically significant crypto activities still fall outside the most straightforward reporting channels.

Looking at the broader picture, the trend continues to move toward automatic reporting.

The EU’s DAC8 regulations took effect on January 1, 2026, with the first reporting year set for 2026 and submissions due by September 30, 2027, according to the European Commission’s DAC8 overview.

The OECD’s Crypto Asset Reporting Framework anticipates the first exchanges of information in 2027, according to the OECD.

Governments are constructing these systems with a revenue narrative in mind.

The infrastructure law’s broker reporting provisions were widely discussed as potentially generating around $28 billion over a decade, a figure referenced in industry analyses such as this breakdown.

Crypto once felt like an application, and now it resembles an asset class with forms, deadlines, and matching systems.

The clearest way to comprehend the 2025 1099-DA rollout is simple.

The form conveys part of the narrative, while your records provide the remainder.

This article is for informational purposes and does not constitute tax advice.

The paperwork is already being distributed, with the first batch arriving yesterday.

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