2025 has brought substantial new challenges as the IRS continues to tighten its focus on U.S. cryptocurrency investors. Cryptocurrency brokerages are required to report gross proceeds for each digital asset transaction they manage on IRS Form 1099-DA. This requirement applies to all digital currency transactions on or after January 1st of this year (2025).
Key Takeaways as the IRS Continues to Tighten its Focus on U.S. Cryptocurrency Investors:
- The IRS shifted the burden for accurate digital currency and asset tracking, and reporting directly to the shoulders of U.S. Taxpayers.
- There is a substantial amount of detailed information U.S. cryptocurrency investors are required to track and report to the IRS and other tax agencies.
- Proving the basis or cost associated with any transaction is the responsibility of the U.S. taxpayer. Failure to provide accurate basis can result in investigation, audit, reset of the basis in question to “0,” and additional financial and criminal consequences.
- 2025 brought a substantial shift of responsibility to the shoulders of U.S. cryptocurrency investors. This will continue to increase in 2026.
Beginning in 2025, U.S. taxpayers who invested in any digital currency or asset were required to record and maintain extensive and detailed records of every associated transaction, especially details related to the basis or cost associated with their cryptocurrency assets. The burden and responsibility for accurately reporting all digital currency transactions, including a well-documented cost basis, shifted to U.S. taxpayers.
The Important Information and Documentation Required to Fulfill a U.S. Taxpayer’s Reporting Requirements to the IRS and other Tax Agencies
As the IRS continues to tighten its focus on U.S. cryptocurrency investors, it is important to keep detailed records and understand which specific information you are required to document thoroughly. IRS regulations for 2025 require a U.S. taxpayer buying or selling a digital asset or currency to document the following:
- The precise data and time of all related transactions (purchase, sale, exchange, other qualifying dispositions)
- Fair Market Value at the moment of the transaction
- Cost Basis: the actual value of the asset at the time of the acquisition, as well as any transaction-related costs or fees.
- A Description of the Transaction: a purchase, a sale, a payment, income, a gift, an exchange, or the use of crypto to purchase goods or services.
- Identification of All Parties: Details of all parties associated with the transaction, including any exchange, wallet, or broker.
- Fees: Any fee (network, transaction, exchange fee) associated with the transaction that increased the purchaser’s basis.
- Wallet Transfers: Detailed records of all wallet transfers and the details necessary to document and differentiate internal transfers from taxable transactions that might in any way be perceived or mischaracterized by the IRS or another tax agency.
Important Developments in 2025 for Cryptocurrency Investors
Many U.S. cryptocurrency brokers and exchanges must report the gross proceeds from any exchange or sale of a digital asset to participant(s) as well as the IRS on Form 1099-DA. In 2025, crypto brokers are only required to report the gross proceeds of a crypto sale, and are not responsible for providing the purchaser’s basis (the cost or what they paid) for the transaction. Basis (cost) must therefore be systematically, accurately, and thoroughly documented by the U.S. taxpayer to support cost basis information reported to the IRS.
In addition, the IRS mandated replacing existing “universal wallet” cost-basis-tracking concepts with wallet-by-wallet accounting, requiring U.S. taxpayers to use a per-account, per-wallet information-tracking and recording system.
Fact: The IRS has already deployed advanced data systems and Artificial Intelligence (AI) applications specifically designed to easily identify, flag, and investigate any discrepancies between the returns of individual U.S. taxpayers, and the information provided by digital asset and cryptocurrency exchanges here in the United States, and around the world, directly to the IRS.
As the IRS continues to tighten its focus on U.S. cryptocurrency investors, the responsibilities placed on the shoulders of individual U.S. taxpayers and the likelihood that the IRS will be easily able to identify and audit attempts to avoid U.S. income tax have significantly increased in 2025. 2026 will bring an even greater tightening of the agency’s grip on the activities of U.S. taxpayers here and around the world.
We invite you to ask about our Cryptocurrency Reporting Guide, and learn more about the integrated tax, legal, accounting and business consulting services of Allen Barron and contact us or call today to schedule a free consultation at 866-631-3470.
