The landscape of cryptocurrency tax reporting changed forever on January 1, 2025. If you've been trading, selling, or investing in digital assets, the IRS just made it much harder to fly under the radar. New federal regulations now require crypto exchanges and brokers to report your transactions directly to the IRS—and this could spell trouble for anyone who hasn't been properly reporting their crypto gains.
What Changed with Cryptocurrency Tax Reporting in 2025?
The Treasury Department and IRS implemented final regulations requiring custodial brokers to report sales and exchanges of digital assets using the new Form 1099-DA. This isn't just a minor paperwork change—it's a complete shift in how the government tracks cryptocurrency transactions.
The regulations specifically target brokers who take possession of digital assets being sold by their customers, including:
- Operators of custodial digital asset trading platforms
- Certain digital asset-hosted wallet providers
- Digital asset kiosks
- Certain processors of digital asset payments (PDAPs)
Importantly, the final regulations do not include reporting requirements for decentralized or non-custodial brokers that do not take possession of digital assets.
Why the IRS Is Targeting Cryptocurrency Tax Compliance
The IRS has made digital asset enforcement a top priority for years, and for good reason. The agency estimates billions in unpaid taxes from unreported crypto gains. With cryptocurrency becoming mainstream, the government needed a way to close this "tax gap."
The new reporting requirements mean the IRS will receive transaction data similar to what they get for stock trades. Just like your brokerage sends you a 1099-B for stock sales, crypto platforms will now send Form 1099-DA for digital asset transactions.
Past Crypto Gains Now Major Audit Targets
Here's what many crypto investors don't realize: these new reporting rules make past unreported gains much riskier. The IRS has been ramping up enforcement efforts, collecting $98.7 billion in enforcement revenue from October 2023 to September 2024. Cryptocurrency compliance sits at the top of their enforcement priority list.
If you've been trading crypto for years without proper reporting, you're now in a vulnerable position. The IRS can audit returns within three years of filing (or six years for substantial underreporting), and they're specifically looking for taxpayers who haven't reported digital asset income.
Form 1099-DA: What Crypto Investors Need to Know
The new Form 1099-DA will report gross proceeds from your crypto sales starting with 2025 transactions. For tax year 2026, the form will also include cost basis information, making it even easier for the IRS to calculate your gains and losses.
This creates a paper trail that didn't exist before. If you receive a 1099-DA but don't report the corresponding income on your tax return, you're likely to trigger an audit notice.
Getting Ahead of Cryptocurrency Tax Problems
The smart move is addressing any past compliance issues before the IRS finds them. If you've had unreported crypto gains, several options can help resolve these problems:
Voluntary Disclosure: Coming forward voluntarily often results in reduced penalties compared to being caught in an audit.
Amended Returns: Filing corrected returns for past years can bring you into compliance and reduce your audit risk.
Professional Representation: Tax professionals experienced in cryptocurrency issues can help navigate the complex rules and negotiate with the IRS if problems arise.
Don't Wait for the IRS to Find You
The digital asset reporting revolution isn't coming—it's here. Every crypto transaction you make in 2025 will likely be reported to the IRS automatically. If you have past unreported gains or questions about crypto tax compliance, now is the time to get help.
The cost of fixing crypto tax problems voluntarily is almost always less than dealing with IRS enforcement actions, penalties, and interest down the road. With the government's new tools for tracking digital assets, staying compliant isn't just smart—it's essential for protecting your financial future.
Need tax help? You can reach us by one of the contact methods below in the blue box, or email me at Larry@TaxProblemSolver.com and we can review your specific issues and solve them. You can also click here to book a free consultation.
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