The IRS Is Now Watching Your Crypto — What Form 1099-DA Means for Investors and Businesses

For years, crypto tax reporting was inconsistent at best and invisible at worst. Some exchanges issued 1099-Ks. Others provided internal summaries. Many provided nothing at all.

That era is over.

Starting with the 2025 tax year, the IRS is requiring brokers and exchanges to issue a brand-new form — Form 1099-DA (Digital Asset Proceeds From Broker Transactions) — that brings cryptocurrency reporting in line with how stocks and traditional investments have been reported for decades.

If you trade, hold, or transact in digital assets, this changes how your activity is tracked, reported, and audited. Here's what you need to know and what to do before tax season arrives.

What Is Form 1099-DA?

Form 1099-DA is a new IRS information return that reports the sale or exchange of digital assets — the crypto equivalent of Form 1099-B, which reports stock transactions.

Beginning January 1, 2025, crypto exchanges and brokers are required to record and report digital asset transactions to both the taxpayer and the IRS. Investors will receive their first 1099-DA forms in early 2026, covering transactions completed throughout 2025.

One critical detail for 2025: the form will only report gross proceeds — not cost basis. That means the IRS will see your transaction totals, but your gain or loss calculation depends on records you may need to reconstruct yourself. Starting in 2026, brokers will also be required to report cost basis, acquisition date, and gain or loss — making accurate recordkeeping now even more important.

Why the IRS Made This Change

Until now, the absence of standardized crypto reporting created what the IRS calls the "crypto tax gap" — taxable transactions that went unreported because there was no third-party verification system to catch them.

The new 1099-DA requirements are designed to fix that by creating consistent reporting standards across all brokers and exchanges, ensuring the IRS receives the same third-party verification it receives for stocks and bonds, and making it significantly easier to identify mismatches between what investors report and what exchanges record.

In short: the IRS wants crypto to look exactly like traditional investment reporting — clear, traceable, and verifiable.

What Gets Reported and When

The rollout happens in two phases:

2025 — Gross Proceeds Only Brokers must report the total proceeds from each sale or exchange. Your original cost basis may not be accurate if assets were acquired on different exchanges or in external wallets. Do not rely solely on your 1099-DA to calculate your gain or loss — connect with a CPA or tax advisor to ensure your cost basis is reported correctly.

2026 and Beyond — Full Transaction Detail Brokers must also report cost basis, acquisition date, and gain or loss. Investors will see complete transaction data on their 1099-DA. Cost basis accuracy remains a concern for assets acquired across multiple platforms or wallets — verification is still essential.

The new rules apply to centralized exchanges, crypto brokers, and custodial wallets — any platform that facilitates digital asset transactions on behalf of users. Noncustodial and decentralized platforms (DeFi) are not yet subject to 1099-DA reporting, though the IRS has signaled that future guidance will expand coverage in this area.

What This Means for Investors and Businesses at Scale

For casual crypto holders, this is largely a compliance and recordkeeping issue. For businesses, active traders, and high-net-worth investors with significant digital asset exposure, the implications run deeper.

Greater IRS visibility means the agency now has the same transaction data you do — and any mismatch between your return and what your broker reports can trigger an IRS notice or audit. For investors who have moved assets across multiple wallets and exchanges over the years, the risk of discrepancies is real and worth addressing proactively.

For Web3 businesses, DeFi participants, and crypto funds, the recordkeeping burden is compounded by the complexity of the transactions themselves. Cost segregation across wallets, staking income, token swaps, and liquidity pool activity all carry tax implications that a single 1099-DA form won't fully capture — and that your tax team needs to understand before the IRS comes asking.

Four Steps to Take Before Filing Season

1. Organize your transaction history now. Pull records from every exchange, wallet, and platform where you've held or transacted in digital assets. A crypto reconciliation tool is essential for anyone with activity across multiple platforms. Do not wait until January.

2. Review cost basis across all wallets. Assets acquired before 2025, transferred between wallets, or purchased on platforms that won't issue a 1099-DA need independent cost basis documentation. Gaps here create direct audit exposure.

3. Confirm your exchange's reporting approach. Not all brokers will handle the 1099-DA transition the same way. Verify how your platform plans to comply with the new IRS requirements and whether their reported cost basis reflects your actual acquisition history.

4. Work with a tax advisor who understands digital assets. Generic tax guidance isn't sufficient here. The intersection of crypto transactions, cost basis tracking, wallet reconciliation, and IRS reporting requires specialized knowledge — particularly for investors and businesses with complex holdings.

The Bottom Line

Form 1099-DA represents a fundamental shift in how the IRS monitors crypto activity. The infrastructure for full digital asset transparency is now in place, and the window to get your records in order before reporting begins is closing.

At CFO Associates, we work with crypto investors, Web3 businesses, exchanges, and high-net-worth clients to stay ahead of evolving digital asset tax regulations. Our team can review your crypto activity, reconcile your cost basis, prepare for the new 1099-DA reporting requirements, and represent you if IRS notices arise.

If you trade or hold digital assets, the time to act is now — not when tax season arrives. Schedule a strategy call with CFO Associates to discuss how these changes affect your specific situation and what steps to take before filing season begins.