Crypto Holders Freak Out Over IRS Tax Mess

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Finance

What to know:

  • New rules compel crypto exchanges like Coinbase to issue a Form 1099-DA to the IRS this week. Because nothing says “trust us” like forcing companies to hand over your financial secrets.
  • The rules are a “blunt instrument,” according to Awaken Tax founder Andrew Duca, created by legislators who know nothing about crypto. Oh, great, another government initiative that’s as confusing as a tax code written in hieroglyphs.
  • The onus falls on the holder of crypto to “patch” what’s missing in terms of their crypto acquisition costs and actual tax basis. Because nothing says “I love you” like asking taxpayers to solve a puzzle made by people who think Bitcoin is a type of cheese.

A recent poll of 1,000 American investors in digital assets found that over half are scared they’ll face an IRS tax penalty this year as new transparency rules governing crypto exchanges take effect. Because nothing says “I’m thrilled” like a government that’s basically saying, “We’re watching, and we’re judging.”

The data collected at the end of January by crypto tax platform Awaken Tax canvassed U.S. holders’ concerns about a radical shift from self-disclosure to automatic reporting of transactions. Because who wouldn’t want to be monitored by a bureaucracy that’s about as subtle as a sledgehammer?

This has been enacted through the introduction of the “Digital Asset Proceeds From Broker Transactions,” or Form 1099-DA, which tens of millions of Americans will be made aware of over the next month or so. Because nothing says “we care” like sending 10 million people a form that’s as clear as a foggy mirror.

The new rules are designed to clamp down on crypto tax evasion and compel brokers, such as crypto exchange Coinbase (COIN), to report all sales and exchanges of digital assets that took place during 2025 to the tax agency. Because nothing says “we’re here to help” like making sure your crypto hobby is as fun as a root canal.

The aim is to give tax authorities a clear view of investor gains and losses by opening up customer data inside exchanges for the first time, allowing the IRS to compare what crypto brokers report with what taxpayers file. Because nothing says “we trust you” like cross-referencing your financial life with a government that’s never been known for its discretion.

While the goal is to remove any margin of error, the rules are a “blunt instrument,” created by legislators who know nothing about crypto, according to Awaken Tax founder Andrew Duca. Oh, great, another government initiative that’s as useful as a screen door on a submarine.

“It means crypto is being treated like stocks, but it doesn’t behave in that way. Real crypto users will move assets between multiple wallets and interact with decentralized finance (DeFi) protocols, using pretty complex trading strategies,” Duca said. Because nothing says “I understand” like comparing crypto to stocks. What’s next, treating Bitcoin like a mutual fund?

Companies like Coinbase can provide information only on the proceeds of sales of crypto and are unable to report tax basis for any given digital asset – typically the purchase price plus acquisition costs – which can then be used to calculate capital gains or losses upon its sale. Because nothing says “we’ve got your back” like a company that can’t track your own money.

“Coinbase actually cannot send the right information, because you can imagine if someone has bitcoin in a cold storage wallet ledger, they send it to Coinbase to sell. Coinbase doesn’t know your acquisition price, what you bought it for. So Coinbase is sending incorrect forms to the IRS. The 1099-DA form reports proceeds, but it doesn’t report tax basis,” Duca said. Because nothing says “we’re competent” like a company that’s clueless about the basics of your own transactions.

Coinbase is well aware of the confusion this will cause. The onus falls on the holder of crypto to “patch” what’s missing in terms of their crypto acquisition costs and actual tax basis via the IRS’s updated Form 8949, Duca said. Because nothing says “we’re helpful” like making you fix the government’s mistakes.

Duca acknowledges that crypto tax compliance is extremely low: Under 20% of crypto holders report what they ought to, he said. That’s like saying only 20% of people know how to use a toaster. Everyone else is just hoping the IRS doesn’t notice the charred bread.

“It’s really not been thought out well and is kind of horrible for crypto users. But it’s what they could do the quickest and the easiest,” Duca said. “They just added this super blunt instrument to try to get that 20% up to 80% in a year.” Because nothing says “we’re committed” like a government that’s basically saying, “We’ll make it harder for you, but maybe you’ll comply. Or else!”

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2026-02-18 16:39