A recent survey of 1,000 U.S. investors in digital assets found that more than half are afraid they will face an IRS tax penalty this year as new transparency rules governing crypto exchanges take effect.
Data collected in late January by crypto tax platform Awaken Tax probed U.S. holders’ concerns about a dramatic shift from self-disclosure to automatic reporting of transactions.
This was enacted through the introduction of the “Proceeds of Digital Assets Arising from Brokerage Transactions,” or Form 1099-DA, which tens of millions of Americans will be notified of over the next month.
The new rules are designed to combat crypto tax evasion and require brokers, such as crypto exchange Coinbase (COIN), to report to the tax agency all sales and exchanges of digital assets that took place in 2025.
The goal is to give tax authorities a clear view of investors’ gains and losses by opening up customer data within exchanges for the first time, allowing the IRS to compare what crypto brokers report with what taxpayers report.
Although the goal is to remove any margin for error, the rules are a “blunt instrument,” created by lawmakers who know nothing about crypto, according to Awaken Tax founder Andrew Duca.
“This means that crypto is treated like stocks, but it does not behave that way. Real crypto users will move their assets between multiple wallets and interact with decentralized finance (DeFi) protocols, using quite complex trading strategies,” Duca said.
Companies like Coinbase can only provide information on proceeds from crypto sales and are unable to report the tax basis of a given digital asset – typically the purchase price plus acquisition costs – which can then be used to calculate capital gains or losses when it is sold.
“Coinbase can’t actually send the correct information, because you can imagine if someone has bitcoin in a cold storage ledger, they send it to Coinbase to sell it. Coinbase doesn’t know your purchase price, or why you bought it. So Coinbase sends incorrect forms to the IRS. Form 1099-DA reports the proceeds, but it doesn’t report the tax basis,” Duca said.
Coinbase is well aware of the confusion this will cause. It is up to the crypto holder to “correct” what is missing in terms of crypto acquisition costs and actual tax basis via the updated IRS Form 8949, Duca said.
Duca acknowledges that crypto tax compliance is extremely low: fewer than 20% of crypto holders report what they should, he said.
“It really wasn’t well thought out and it’s pretty horrible for crypto users. But it’s the quickest and easiest thing they could do,” Duca said. “They just added this very blunt instrument to try to get that 20% up to 80% in one year.”
