Why The US Tax Code Needs to Catch Up With Crypto Reporting

The IRS could receive as many as eight billion tax forms tied to cryptocurrency transactions this year, with many reporting routine, low-dollar activity that generate little to no revenue. Instead of focusing on tax compliance and enforcement, the agency risks being buried in paperwork.

The IRS is in the midst of a 25% staff reduction, so it’s precisely the wrong moment to burden remaining employees with additional, ineffectual inbound reporting.

But this looming administrative nightmare is avoidable. Targeted, bipartisan crypto tax reform needs to reflect the technological reality of the digital asset economy, and Congress can deliver a win for taxpayers, reduce unnecessary and burdensome reporting, and allow the IRS to focus on meaningful enforcement.

Taxation works best when obligations are clear, practical, and enforceable. Crypto should be no different.

Problem Ahead

Under current IRS rules, digital assets are treated as property, which means most crypto activity triggers reporting requirements for taxable capital gains. Routine actions such as moving crypto off an exchange, swapping one token for another, or shifting tokens between wallets create multiple reportable events that must be tracked, no matter how small.

To complicate things further, many digital asset transactions don’t occur through a broker at all. When users send crypto between wallets or transact on decentralized platforms, they are left to independently calculate and track capital gains across dozens or even hundreds of transactions, often without standardized reporting guidance.

What may have sounded reasonable in theory becomes unworkable at blockchain scale, where millions of transactions occur every day.

The problem is about to get much worse.

New IRS guidance requires crypto brokers to issue a Form 1099-DA for every single one of these transactions, meaning a separate return is required for routine low-dollar activity. Reporting requirements ill-suited for the digital asset economy will overwhelm taxpayers and tax administrators alike while diverting resources away from meaningful compliance and enforcement.

Need for Reform

Congress doesn’t need to overhaul the tax code to fix this; straightforward solutions are already available. Blockchain Association, which I lead, recently released a set of principles to help guide meaningful, bipartisan legislation to fix the tax treatment of crypto and digital assets.

Lawmakers can act on several fronts.

• A workable de minimis exemption would free everyday crypto users from having to report capital gains on economically insignificant transactions.
• Congress should also treat staking rewards as newly created property, taxed upon disposition rather than receipt, and sourced to the taxpayer’s residence.
• Reporting requirements should be carefully tailored to preserve user privacy while ensuring accountability.

Together, these targeted reforms would simplify compliance and dramatically reduce unnecessary reporting at the IRS.

Information reporting is most effective when it reinforces clear and administrable tax rules. Conversely, ill-fitting requirements undermine the IRS’s own capabilities. If an understaffed IRS must apply confusing rules to a deluge of new tax forms, the risk of errors, mismatches, and disputes only increases.

Reform is especially urgent given crypto’s reach. Crypto is no longer the niche, alternative asset class it was a decade ago. It’s deeply integrated into the modern economy.

Today, more than one in five Americans own digital assets. Those more than 50 million Americans who own and use crypto are a meaningful and growing segment of the broader economy; the global digital asset market capitalization now exceeds $2.3 trillion.

The crypto industry and its users are not advocating for special carve-outs for digital assets. All they ask for are clear, administrable rules that align with the function of the digital asset ecosystem.

With digital asset reporting fully underway and mainstream participation growing, the case for action is straightforward. Market structure legislation remains a priority.

But tax clarity doesn’t need to wait. Congress should act now—before tax season becomes an avoidable crisis.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Summer Mersinger is CEO of Blockchain Association, the Washington, D.C.-based trade association representing more than 100 of the crypto industry’s leading organizations.

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