Exchanges reporting crypto gains to IRS becomes tax nightmare

The Internal Revenue Service (IRS) now has the ability to see cryptocurrency gains made by American investors, thanks to new rules required of brokers. However, this new reporting system has created a tax nightmare for some taxpayers. The IRS knows about the gross proceeds from certain digital asset sales, but it does not have the cost basis information.

This has left many investors struggling to calculate their gains and losses, as they are required to do so themselves. A survey conducted in August by Awaken Tax found that 21% of respondents who filed or planned to file a tax extension were still waiting for information from an exchange or crypto platform. Additionally, one in five respondents said their 1099-DA, the tax form brokers use to report certain digital asset sales, was either incomplete or inaccurate.

This is a problem because taxpayers need to know their cost basis in order to calculate their gains and losses. Chris Herbst, managing director of CountDeFi tax reporting, explains that for active traders, the cost basis can be a significant amount, potentially many times their real gain. The IRS has required brokers to report the proceeds of sales, but not the cost basis, which means taxpayers must calculate their gains and losses on their own.

This process can be time-consuming and complicated, especially for those who frequently trade cryptocurrencies. To make matters worse, the 1099-DA form received by taxpayers may not accurately reflect their transactions. For example, one client of Crypto Tax Advisors had over $300,000 in stablecoin trades on an exchange in 2025, but the exchange's 1099-DA showed less than $100,000 in total stablecoin proceeds.

The discrepancies between the 1099-DA forms and the actual transaction history have caused confusion and made it difficult for taxpayers to accurately report their gains and losses.