A recent poll of 1,000 U.S. digital asset investors found that more than half are worried about facing tax penalties from the IRS this year as new transparency rules governing cryptocurrency exchanges take effect.
Data collected by cryptocurrency tax platform Awaken Tax in late January explores U.S. holders’ concerns about a radical shift from self-disclosure to automated reporting of transactions.
This is being implemented through the introduction of the “Gains from Digital Assets from Brokered Transactions,” or 1099-DA form, which tens of millions of Americans will learn about in the next month or so.
The new rules aim to crack down on cryptocurrency tax evasion and force brokers such as cryptocurrency exchange Coinbase (COIN) to report all digital asset sales and transactions that occur during 2025 to the tax agency.
The aim is to give tax authorities a clear picture of investors’ gains and losses by opening up customer data within exchanges for the first time, allowing the IRS to compare what cryptocurrency brokers report with documents filed by taxpayers.
Awaken Tax founder Andrew Duca said that while the goal is to eliminate any margin of error, the rules are a “blunt tool” created by lawmakers who know nothing about cryptocurrencies.
“This means that cryptocurrency is treated like a stock, but it doesn’t behave that way. Real cryptocurrency users will use fairly sophisticated trading strategies to move assets between multiple wallets and interact with decentralized finance (DeFi) protocols,” Duca said.
Companies like Coinbase can only provide information on proceeds from cryptocurrency sales and cannot report the tax basis of any given digital asset (usually the purchase price plus acquisition costs), which can then be used to calculate capital gains or losses upon sale.
“Coinbase can’t actually send the correct information because you can imagine if someone had Bitcoin in a cold wallet ledger, they would send it to Coinbase to sell. Coinbase doesn’t know what you acquired it for, and it doesn’t know what you bought it for. So Coinbase sends the wrong form to the IRS. The 1099-DA form reports the gain, but not the tax basis,” Duca said.
Coinbase is well aware that this creates confusion. Duca said it’s the responsibility of cryptocurrency holders to “patch” the lack of acquisition costs and actual tax basis of their cryptocurrencies through the IRS’s updated Form 8949.
Duca acknowledged that cryptocurrency tax compliance is extremely low: less than 20% of cryptocurrency holders report what they are supposed to report, he said.
“It’s really not well thought out and a little scary for cryptocurrency users. But it’s the quickest and easiest thing they can do,” Duca said. “They just added this super blunt to try to get 20 percent to 80 percent in a year.”
