First Batch of Tax Forms for Crypto Transactions Sow Confusion

Cryptocurrency investors will head into a new and confusing tax season next year as they receive the first-ever batch of reporting statements disclosing information from their digital asset transactions and navigate potential differences in federal and state rules.

The new Form 1099-DA launches a federal effort to improve compliance by supplying uniform statements summarizing gross sales from certain digital asset transactions. While improving taxpayer reporting around digital assets has been a priority for several years, the new standardized forms mark the first time exchanges, brokers, and payment platforms have a duty to supply matching transaction records to both taxpayers and the Internal Revenue Service.

Industry insiders, however, worry that the IRS and the financial firms haven’t done enough to raise awareness of the potentially billions of forms that will arrive in investors’ mailboxes in January and February.

“The stakeholders enrolled in this system are going to get surprised because only a small number know about these upcoming forms,” creating potential chaos, said Shehan Chandrasekera, chief of tax strategy for the crypto tax and accounting software CoinTracker.

Tax attorneys and accountants are bracing for angry clients discovering deficiencies in the data reported on their 1099-DAs. Some warn brokers and taxpayers could be subject to separate state disclosure and filing rules.

“This is going to be a mess,” said Chicago tax attorney Andrew Gordon, who specializes in cryptocurrency issues. “The IRS is going to receive an incomplete picture, forcing the taxpayer to clear up that incomplete picture. And that adds more work and complication for the taxpayer, not less.”

Requirements for the 1099-DA were included in the 2021 infrastructure law in response to exploding interest in cryptocurrencies, nonfungible tokens, and other digital assets. The Treasury Department and IRS issued final regulations in August 2024 that treat digital asset brokers like securities brokers, and create a framework for compliance over multiple years.

Exchanges and Brokers

The obligation to supply accurate 1099-DAs will fall on crypto exchanges like Coinbase and Binance US, and fintech applications such as Robinhood and PayPal. Financial institutions that facilitate trading will also distribute the forms. For tax year 2025, the exchanges and brokers are required to report gross proceeds from taxable crypto sales.

The forms must be provided to taxpayers by Feb. 17, 2026, though the IRS will offer transitional relief from penalties for good-faith efforts to meet the deadline.

Calculations of cost basis—the initial amount investors pay for an asset—will not be required for the upcoming tax season. Cost basis reporting for certain “covered assets” will begin with the 2026 tax year.

The lack of basis reporting will be a departure from 1099-Bs, which reflect gains and losses from securities investments. Taxpayers will be forced to track their acquisition costs to calculate their crypto gains and losses across multiple exchanges and wallets.

While the process may be familiar to taxpayers who reported in previous years, it could be daunting for the hundreds of thousands of taxpayers expected to begin reporting for the first time, said Laura Walter, founder of the compliance service Crypto Tax Girl.

“The 1099-DA will be a lot more confusing than what investors see on a 1099-B,” Walter said. “And it will be really tricky to get the data because its not just from one source. You are looking at a consolidated ledger across multiple exchanges and wallets.”

The IRS has said little about the upcoming compliance regime other than a brief statement in September. Last year the Government Accountability Office faulted the IRS for failing to apply lessons learned in previous tax form rollout campaigns. An IRS spokesperson declined to describe the agency’s readiness for the coming flood of 1099-DA information.

On top of the new federal rules, states have a separate set of reporting requirements, thresholds, and deadlines, said Patrick Camuso, founder of the crypto tax consulting firm Camuso CPA.

Montana became the first state to show its independence, issuing guidance specifying it wouldn’t rely on the combined federal-state filing program. That means brokers will have to create separate state-specific electronic files and upload them to Montana’s revenue department. Moreover, Montana may not conform to the IRS’s transitional relief from penalties.

“Not all states will conform to the IRS transitional relief and Montana is the first to put it out in guidance,” Camuso said. “I would expect some other states to give guidance on this as well.”

The Montana Department of Revenue did not respond to a request for comment.

More Drama Next Year

The confusion could get worse when cost basis reporting begins next year, because exchanges and brokers will only report information about “covered assets.” The regulations describe covered assets as digital assets bought on or after Jan. 1, 2026 through a brokerage custody account, and held in that same account until the moment of sale.

Cost basis reporting will be tricky because of the ocean of “uncovered assets”—including assets acquired before 2026, assets acquired through an exempt party or foreign intermediary, and assets held in a personal crypto wallet. None will appear on a 2026 1099-DA, Gordon said.

The 1099-DA rules will require most taxpayers to rely on cryptocurrency tax-tracking software for their basis calculations, which could prove problematic, said Tyler Menzer, an accounting professor at Texas Christian University.

Menzer conducted an analysis of five different tax accounting systems and found significant variances across the products due to algorithmic differences, the ways fees are handled, the treatment of transfers between wallets, and the ability of users to manipulate their data. When the same data set was fed into the five products, the calculations for taxable income ranged from a $1,516 loss to a $2,696 gain, while the true result was a $1,266 loss, he said.

“This will undoubtedly increase collections,” Menzer said. “The question is, will some people be overpaying their taxes—probably. Are some people going to be underpaying their taxes—also probably true.”