- New IRS tax rules introduce Form 1099-DA, requiring brokers like Coinbase to report digital asset sales and exchanges for 2025.
- Exchanges will report proceeds but not tax basis, leaving investors responsible for filling in acquisition cost details on updated IRS Form 8949.
New IRS tax rules targeting digital asset transactions are unsettling many U.S. crypto investors. A recent survey of 1,000 American holders of digital assets found that more than half worry they could be hit with an IRS tax penalty this year as a new reporting regime for crypto exchanges begins to roll out. The shift centers on a move away from voluntary disclosure by taxpayers toward automatic reporting of crypto activity directly to the tax agency.
New IRS tax rules and the arrival of Form 1099-DA
At the core of the change is a new document titled “Digital Asset Proceeds From Broker Transactions,” or Form 1099-DA. Over the coming weeks, tens of millions of Americans are expected to encounter this form for the first time as crypto platforms begin notifying customers. The new IRS tax rules require brokers, including major exchanges such as Coinbase (COIN), to report all sales and exchanges of digital assets that occur during 2025.
The policy is designed to narrow gaps in crypto tax reporting and to deter tax evasion. By obliging intermediaries to send transaction data directly to the IRS, authorities aim to gain a comprehensive record of investor gains and losses. For the first time, tax officials will have standardized access to customer transaction data held inside exchanges, allowing them to match what brokers report with what individual taxpayers submit on their returns.
This represents a significant break from the previous system, in which crypto investors largely self-reported their trading activity. According to the poll conducted at the end of January by crypto tax platform Awaken Tax, that shift in who holds reporting responsibility is a major source of anxiety for investors, many of whom are unsure how their activity will now be viewed by the IRS.
A “blunt instrument” for a complex crypto ecosystem
Awaken Tax founder Andrew Duca described the framework behind the new IRS tax rules as a “blunt instrument” crafted by policymakers who, in his view, lack a detailed understanding of how digital assets function in practice. He noted that the rules effectively place crypto in the same reporting category as traditional securities, even though trading behaviors and transaction patterns differ significantly.
Duca pointed out that active crypto participants often hold assets across multiple wallets and engage with decentralized finance (DeFi) protocols, employing intricate strategies that can involve rapid movement between platforms and products. That type of behavior complicates tracking cost basis and tax outcomes, in ways that do not fit neatly into standard brokerage reporting templates built for stocks.
Under the new system, a platform such as Coinbase is required to report the proceeds from a customer’s digital asset sale. However, Duca emphasized that exchanges typically do not have visibility into when and for how much an investor originally acquired a given asset. The tax basis for a token—its purchase price plus acquisition costs—is essential for computing capital gains or losses but is often unknown to the exchange if the asset originated elsewhere.
He offered a simple example: an investor might acquire bitcoin and store it on a cold storage hardware wallet, then later transfer it to Coinbase solely to sell. In that situation, Coinbase can confirm the sale proceeds but cannot identify the original purchase price. Yet the 1099-DA form reports only the proceeds figure, not the tax basis, meaning the data delivered to the IRS will often be incomplete from a tax computation standpoint.
Investor confusion and low compliance collide
The structural gap in information creates practical problems for both taxpayers and exchanges under the new IRS tax rules. Duca said Coinbase is fully aware that the incoming regime is likely to generate confusion, because the forms it sends to the IRS may appear “incorrect” or at least incomplete from the perspective of a complete gain or loss calculation. Nonetheless, the reporting obligation remains, and it falls to investors to reconcile the numbers.
To address this, the IRS has updated Form 8949, which is used to report capital gains and losses. According to Duca, crypto holders will have to “patch” the missing data by adding their own records of acquisition costs and tax basis on this form. That process demands careful recordkeeping and could be challenging for users who have moved assets through multiple wallets, protocols, and exchanges over several years.
The backdrop to these changes is what Duca describes as very low tax compliance in the crypto sector. He estimates that fewer than 20% of crypto holders currently report their activities to the extent required. Policymakers appear to be responding to that shortfall by introducing a mechanism that significantly increases the volume of information available to the IRS in a short period.
Duca characterized the policy as hastily assembled, saying it had “not been thought out well” and describing it as “kind of horrible for crypto users.” Nonetheless, he suggested that from the government’s perspective, adopting a broad, simplified tool like Form 1099-DA was a way to rapidly push reported compliance from around 20% toward 80% within a single year, even if it imposes heavy administrative demands on investors.
Conclusion
The rollout of new IRS tax rules for digital assets marks a decisive shift in how crypto transactions are monitored and reported. With the introduction of Form 1099-DA, brokers such as Coinbase will begin transmitting detailed records of digital asset sales and exchanges for 2025 directly to the tax agency. These reports, however, will typically cover only proceeds and not the underlying tax basis, leaving investors responsible for filling in the gaps through updated forms like 8949.
For many of the 1,000 U.S. investors surveyed by Awaken Tax, this combination of increased scrutiny, incomplete third-party forms, and already low compliance rates feeds a growing fear of potential tax penalties. As automatic reporting replaces a system built on self-disclosure, crypto holders will have to adapt their recordkeeping and filing practices to navigate a framework that its critics see as overly blunt for such a complex asset class.
Disclaimer
The information provided in this article is for informational purposes only and should not be considered financial advice. The article does not offer sufficient information to make investment decisions, nor does it constitute an offer, recommendation, or solicitation to buy or sell any financial instrument. The content is opinion of the author and does not reflect any view or suggestion or any kind of advise from CryptoNewsBytes.com. The author declares he does not hold any of the above mentioned tokens or received any incentive from any company.
Featured image created by AI
