How Crypto Exchanges Report to the IRS in 2025 (And What You Must Do About It) 

Key Takeaways 

• All major U.S.-based centralized crypto exchanges are now required to report certain transactions to the IRS using Form 1099-DA. Form 1099-DAs for 2025 transactions are required to be furnished to recipients by February 17, 2026, and generally will not include cost basis information. 

• Form 1099-DA has no minimum reporting threshold. Some crypto activity may not appear on any 1099, but that does not exempt it from tax reporting. DeFi transactions, NFTs, and self-custody transfers must still be tracked and reported by the taxpayer. 

• Reconciliation is no longer optional—discrepancies between your records, crypto tax software, and multiple 1099-DA forms can trigger audits, and fixing these gaps before filing is the difference between confidence and sleepless nights during tax season. 

You’ve just received your first Form 1099-DA from Coinbase. You compare it to your crypto tax software report, and the numbers don’t match. Not by a little, but by tens of thousands of dollars in reported gains. Your software shows a loss for the year, the 1099-DA shows a gain. And the IRS has a copy sitting in their system, waiting to see if your tax return matches. 

Welcome to tax year 2025, where the IRS mandatory crypto exchange reporting isn’t just coming, it’s already here. If you’re holding a seven-figure portfolio across multiple exchanges, used DeFi protocols, or moved assets between wallets, reconciling these forms just became your most important tax season task, and if ignored, a potential nightmare. 

What is Form 1099-DA? 

Form 1099-DA is the IRS’s standardized reporting form for digital asset transactions, the crypto equivalent of the 1099-B your brokerage sends for stock trades. Starting with the 2025 tax year (filed in 2026), exchanges must file Form 1099-DA with the IRS by January 31 and provide a copy to taxpayers by mid-February.  Material mismatches can trigger automated IRS matching notices or further review. 

What’s Reported: 

• Gross proceeds from sales and other taxable dispositions 

• Cost basis information for covered digital assets (not required for 2025 reporting and often unavailable or incomplete) 

• Disposition dates, and acquisition dates where available 

• Digital asset identifiers (e.g., BTC, ETH)  

• Holding period classification (when determinable based on available data) 

The Critical Distinction: The form separates covered securities (where exchanges have complete cost basis because you acquired crypto on their platform) from non-covered securities (where you transferred crypto in, so they’re guessing or leaving basis blank). 

What’s Missing: You won’t receive 1099-DA forms for DEX transactions, peer-to-peer trades, mining income, staking rewards, or wallet-to-wallet transfers. These activities still create taxable events, they’re just invisible to the 1099-DA system. 

Which Crypto Exchanges Report to the IRS? 

U.S. based Centralized Exchanges (Must Report), for example: 

• Coinbase 

• Kraken 

• Gemini 

• Binance.US 

• Crypto.com (U.S.) 

• Robinhood 

What’s NOT Reported: 

• DeFi protocols (e.g., Uniswap, Aave, Compound) 

• DEX transactions 

• NFT marketplace sales 

• Peer-to-peer transactions 

• Wallet transfers 

The $10,000 Threshold Confusion: This threshold determines when brokers must report cash transactions under Form 8300. It does not apply to Form 1099-DA and it does not exempt you from reporting smaller gains. If you sold $5,000 of Bitcoin at profit, you owe taxes whether or not you received a 1099-DA. 

International Exchanges: Platforms like Binance International, Bybit, and KuCoin won’t send 1099-DA forms, but you’re still required to report all your crypto taxable transactions. Plus, if you held over $10,000 on foreign exchanges at any point, you may have FBAR filing requirements. FBAR penalties start at $10,000 for non-willful violations. 

How Exchanges Calculate Cost Basis (And Why It’s Often Wrong) 

Cost basis determines your tax: sale proceeds minus what you paid. When selling fungible assets like Bitcoin, exchanges must decide which coins you’re selling. This creates problems. 

Accounting Methods: 

FIFO (First-In, First-Out) assumes you sell oldest assets first. Most exchanges default to this because it’s simplest. 

LIFO (Last-In, First-Out) assumes you sell the newest assets first. 

Specific Identification allows you to select which specific units are sold, it’s most tax-advantageous but requires meticulous records. 

Why Exchange Cost Basis Fails: 

1. Wash sale–like adjustments: Some exchanges apply internal loss-deferral or lot-matching logic that resembles wash sale treatment, even though statutory wash sale rules do not currently apply to crypto. Others make no such adjustments, leading to inconsistent results. 

2. Protocol events: Airdrops, hard forks, and similar protocol-level events create cost basis and income-recognition challenges that exchanges often handle inconsistently, or not at all. 

3. Missing transfer history: Exchanges only know what happened on their platform.  Transfers to or from external wallets or other exchanges break the cost basis chain. 

The Transfer Problem: You bought ETH on Coinbase in 2019 for $150. Transferred to your hardware wallet. Moved to Kraken in 2024 to sell at $2,400. Kraken’s 1099-DA shows $2,400 proceeds with $0 cost basis—a phantom $2,400 gain. The IRS sees this. Your return shows $2,250 gain (correctly accounting for $150 basis). There’s a discrepancy that needs explanation. 

Multiply this across five exchanges and hundreds or thousands of transactions. 

The Reconciliation Challenge 

Your 1099-DA won’t match your actual tax position. Count on it. The discrepancies aren’t necessarily errors; they’re gaps in perspective. 

Common Discrepancies: 

• Transfers misinterpreted as taxable events: Exchange reports may reflect outgoing transfers as reportable dispositions when cost basis or transfer context is missing, creating apparent (but not actual) gains. 

• Missing or unavailable cost basis: Assets acquired off-platform or in earlier years often lack purchase history, resulting in missing basis information on exchange reports. 

• Income classification differences: Staking or reward income may be reported separately (e.g., on Form 1099-MISC) or not fully reflected in 1099-DA proceeds, requiring manual reconciliation. 

• Double-counting risk: The same assets and transactions can appear across multiple exchange reports when activity spans platforms, leading to duplication without proper aggregation. 

 A Practical Reconciliation Framework 
(The scope and depth depend on the nature and risk profile of your activity.) 

1. Collect Forms 1099-DA issued by any exchanges used during the year 

2. Obtain transaction histories from relevant platforms and wallets 

3. Use crypto tax software (e.g, CoinTracking, Summ, Koinly) or equivalent tools to aggregate and analyze activity 

4. Identify transfers between wallets or platforms and determine which represent non-taxable movements versus taxable dispositions. 

5. Reconcile aggregated transaction results to exchange-reported proceeds to identify material differences. 

6. Where discrepancies are material, maintain supporting documentation sufficient to substantiate reported positions, and consider additional disclosures or explanations based on risk and complexity. 

 When Professional Review Is Most Valuable: 

• Activity spread across multiple exchanges or wallets that is difficult to consolidate or reconcile 

• Meaningful DeFi activity layered on top of centralized exchange trading 

• NFT transactions involving material dollar amounts, frequent trading, or secondary-market sales 

• Crypto activity conducted through a business entity, or involving compensation, payments, or inventory-like activity 

• Unresolved discrepancies or inconsistencies from prior tax years 

• Use of foreign or non-U.S. exchanges that may trigger additional reporting (e.g., FBAR or FATCA) 

• Material differences between exchange-reported proceeds and your calculated gains or losses 

What Still Requires Taxpayer Tracking and Judgment 

Form 1099-DA doesn’t eliminate your obligation to report everything else. 

 Common crypto activities not fully reflected on Form 1099-DA include: 

• Peer-to-peer sales or transfers involving consideration (cash, goods, or services) 

• Crypto received as compensation for services (taxable as ordinary income at fair market value when received) 

• Gifts of crypto exceeding the annual gift tax exclusion amount (which may require Form 709) 

• Charitable donations of crypto, which require substantiation and may involve valuation and appraisal considerations 

DeFi Activity: 

• Token swaps on decentralized exchanges, which are generally treated as taxable dispositions 

• Liquidity pool activity, including deposits, withdrawals, and fee income, which may involve multiple taxable and income recognition events 

• Yield farming or incentive rewards, which are commonly treated as taxable income when received 

NFT Sales: Typically subject to capital gains treatment, with additional complexity around acquisition cost, holding period, and potential collectibles classification. 

Mining and Staking: Generally treated as ordinary income at fair market value when received, which then establishes cost basis for future dispositions. Mining conducted as a trade or business may involve Schedule C reporting and self-employment tax considerations. 

Foreign Exchange Activity:  Subject to the same U.S. tax reporting requirements as domestic activity, even when no Form 1099-DA is issued. Separate foreign account reporting obligations (such as FBAR) may apply based on aggregate balances. 

Penalties and Audit Risk 

 The IRS has significantly expanded its ability to identify crypto-related discrepancies. Form 1099-DA introduces standardized third-party reporting, allowing the IRS to more easily compare exchange-reported proceeds with what appears on a taxpayer’s return. 

Penalties: 

• Underpayment-related penalties: Generally 20% of the underpaid tax for negligence or substantial understatement. Civil fraud penalties (75%) apply only in cases involving willful intent. 

• FBAR penalties: Non-willful violations may result in penalties of up to $10,000 per year, while willful violations can carry significantly higher penalties, subject to statutory caps and enforcement discretion. 

 Common IRS Risk Indicators: 

• Material unexplained differences between exchange-reported proceeds and reported gains or losses 

• Reported losses that appear inconsistent with high reported proceeds 

• Failure to report crypto activity when third-party reporting (e.g., Form 1099-DA) exists 

• Failure to file required foreign account disclosures (e.g., FBAR, Form 8938), when applicable 

• Amended returns claiming material crypto losses without supporting documentation 

 How to Respond to IRS Notices: 

1. Don’t panic—many notices are automated matching inquiries, not audits 

2. Review the notice carefully to understand the specific issue raised 

3. Gather documentation promptly 

4. Respond within the stated deadline 

5. Consider professional representation when amounts are material or issues are complex 

State-Level Complications 

Most states generally conform to federal tax treatment of digital assets, but state-level issues can still materially affect outcomes. 

High-Tax States: California, New York, and New Jersey closely scrutinize residency changes around significant income or liquidity events, including large crypto dispositions. 

No State Income Tax: States like Texas, Florida, Nevada, Washington, and Wyoming do not tax individual income, though federal tax obligations still apply. 

Multi-State Considerations: Taxpayers who change residency during the year may need to file part-year returns. Capital gains from digital assets are generally sourced based on residency at the time of disposition, which can create complexity when moves occur mid-year. 

Business vs. Individual Reporting 

Crypto activity conducted through a business entity is subject to different tax considerations than individual investment activity. 

Key differences may include: 

• Crypto received as payment is generally treated as ordinary business income 

• Certain trading or operational activities may give rise to ordinary income treatment rather than capital gains, depending on facts and circumstances 

• Business expenses paid in crypto may be deductible, subject to standard substantiation rules 

Additional Business Compliance Considerations: 

• Form 1099-NEC reporting for contractors paid in crypto over applicable thresholds 

• W-2 wage reporting for employees paid in crypto 

• Payroll tax, sales tax, and state-level compliance 

• Multi-entity tracking and K-1 reporting for pass-through entities 

The Bottom Line 

Form 1099-DA fundamentally changes crypto tax compliance by introducing standardized third-party reporting. While this increases IRS visibility, it does not provide a complete or accurate picture of a taxpayer’s actual tax position. 

 The primary risk lies in the gap between what exchanges report and what actually occurred across wallets, platforms, and protocols. Understanding what’s reported, what’s missing, and how to substantiate the difference is now a critical part of compliant crypto tax reporting. 

 For taxpayers with multi-exchange activity, DeFi exposure, or significant transfers between wallets, reconciliation is no longer optional. Proper documentation and informed judgment are essential to reducing audit risk and reporting accurately. 

Ready to Get Your Crypto Taxes Right? 

At Chainwise CPA, we focus on the practical realities of crypto tax compliance. Our team combines deep technical understanding of digital assets with CPA-level tax expertise to help investors navigate Form 1099-DA reporting with clarity and confidence. 

 We assist clients with: 

• Reconciling 1099-DA discrepancies with audit-ready documentation 

• Reconstructing cost basis and transaction histories where data is incomplete 

• Integrating DeFi, NFT, and multi-exchange activity into compliant returns 

• Providing year-round guidance to support informed tax decisions 

Don’t wait until you receive an IRS notice. Contact us now to see how our crypto tax specialists can help you navigate 1099-DA compliance with confidence. 

FAQs 

Do all crypto exchanges report to the IRS?  

• All U.S.-based centralized exchanges must issue Form 1099-DA starting with 2025 transactions. DEXs and foreign exchanges don’t, but you still must report all your crypto taxable transactions. 

What if my 1099-DA is wrong?  

• You should report the correct tax information on your return based on your actual transaction history.  Maintain documentation supporting your position and be prepared to explain material differences if requested. Ignoring exchange-reported information is not advisable. 

Can I use my own cost basis?  

• Yes, but you need reasonable documentation: transaction records, bank statements, blockchain evidence, etc. Without proof, IRS defaults to exchange numbers or zero basis. 

What if I used multiple exchanges?  

• You may receive multiple Forms 1099-DA, each showing only part of the picture. To report your taxes accurately, you need to aggregate all activity, identify transfers, calculate your actual gains or losses, and then reconcile the results to the combined exchange reports. 

Do I report crypto if I only held?  

• If during a tax year you only held crypto and had no taxable transactions, you generally do not report any income or gains, though the digital asset question on Form 1040 may still require a response. 

How far back can IRS audit crypto?  

• It depends on statute of limitation – usually three years, six years if you underreported income by 25%+, no limit if you didn’t file or filed fraudulently. 

Can crypto losses offset other income?  

• Yes. Capital losses offset capital gains dollar-for-dollar. Excess capital losses: deduct $3,000 against ordinary income annually. Remaining losses can be carried forward indefinitely. 

Compliance Disclaimer 

This article is provided for general informational and educational purposes only and does not constitute tax, legal, or accounting advice. Tax treatment of digital assets depends on individual facts and circumstances and may change as IRS guidance evolves. Readers should not act on this information without consulting a qualified tax professional regarding their specific situation.