IRS crypto tax reporting rules increase compliance risk for U.S. investors

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IRS crypto tax reporting rules

Highlights

IRS will require digital asset brokers to issue Form 1099-DA for crypto transactions starting Jan. 1, 2025, increasing government oversight and compliance risk.
A March study in the Review of Accounting Studies estimates only 32% to 56% of U.S. taxpayers with crypto holdings currently report transactions, highlighting underreporting risks.
Lack of automatic cost basis and holding period reporting in crypto, combined with complex transaction types and frequent transfers, significantly increases compliance burden for active traders.

New reporting framework for digital assets

As reported by CNBC, the Internal Revenue Service now requires digital asset brokers to issue Form 1099-DA to investors for transactions occurring on or after Jan. 1, 2025, a change that makes crypto activity easier for the federal government to track. Tax specialists say the shift raises the likelihood that discrepancies between investor filings and broker-reported proceeds are identified.

Accountants say digital asset taxation remains far more complex than taxation for traditional assets such as stocks and bonds. A March research paper published in the Review of Accounting Studies estimates that about 32% to 56% of U.S. taxpayers with crypto holdings report their transactions to the federal government.

Erin Collins, the IRS National Taxpayer Advocate, says in a June report to Congress that the data suggests a significant share of taxpayers may be out of compliance, often because of confusion or limited guidance rather than deliberate neglect. Laura Walter, founder of Crypto Tax Girl, says the agency is unlikely to accept complexity as a reason for failing to report correctly.

Compliance burden grows for active traders

Unlike the more developed reporting system for stocks and mutual funds, the crypto market still lacks much of the infrastructure needed to automatically provide key tax details such as cost basis and holding period. Troy Lewis, an accounting and tax professor at Brigham Young University, says those figures are central to determining capital gains and the applicable tax rate.

Simple transactions, such as buying bitcoin on one platform and later selling it at a profit, are usually easier to document. But experts say activity involving staking, mining, airdrops, wallet transfers, crypto-to-crypto trades and decentralized finance lending can quickly create hundreds of taxable events in a single year.

Walter says investors often move assets across several exchanges and personal wallets, partly in response to past crypto company bankruptcies including BlockFi, Celsius and FTX. Lewis says investors should preserve transaction histories, track wallets, exchanges, fees and transfer times, and consider software such as CoinTracking, Koinly and Summ to organize records before enforcement risk rises further.

Our earlier coverage of Federal Reserve communication risks examined how Chairman Kevin Warsh’s decision to hold rates steady without a clear explanation unsettled investors. We noted that the lack of guidance quickly pushed long-term bond yields higher and revived concerns that reduced transparency could amplify volatility and uncertainty about future policy.

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